Shippers urge reversal of Malacca Strait "war risk" rating

LONDON (CNI)--Leaders of the international shipping industry have joined forces to urge Lloyd's of London underwriters to reconsider their decision to charge war risk premiums for vessels transiting the Malacca Strait.

The Joint War Committee (JWC) of the Lloyd’s Market Association, which represents underwriters in the Lloyd's market, last month added the key shipping channel to a list of 21 areas considered a particularly high risk from war, terrorism and related perils.

It took the controversial decision amid fears in the insurance market that a chemical or oil tanker might be hijacked for use in a terrorist attack. 

The move will add to the insurance premiums charged for vessels using the Malacca Strait although a spokesman for independent tanker owners' association Intertanko said on Friday he did not know how high premiums may rise and was unaware of any operators that were currently paying increased premiums.

He added that it would be unlikely that vessels would re-route to avoid the Malacca Strait as any change would involve a significant diversion. Premiums would have to rise incredibly to make economic sense of re-routing, he said.

Lloyd’s underwriters designated the Strait, which separates Malaysia and Singapore from Sumatra in Indonesia, as a high risk area on the advice of third-party security consultant Aegis Defence Services.

Shipping Industry concern centres around the real level of risk in the region and the fact that a single report from one commercial security organisation has apparently influenced the decision to increase premiums.

Intertanko said today that at a meeting between its chairman, the chairman of the International Chamber of Shipping (ICS) and representatives of the JWC, the committee acknowledged that it would have “been preferable” to have involved the two industry bodies in discussions before amending definitions of war risk areas.

The Singapore Shipping Association (SSA) also called for the JWC to reconsider its decision. The SSA additionally represents the Asian Shipowners Forum, the Federation of ASEAN Shipowners’ Associations, ICS and Intertanko.

The SSA said that it regards the JWC decision to be based on a “fundamental misunderstanding” of the current threat to shipping from terrorist organisations and believes that there is no evidence of such a threat.

SSA executive director Daniel Tan said: “We are ready to provide the JWC with additional research into the security of the Malacca Strait so insurers can have a fuller understanding of the reality of the situation which prevails.”

The industry has called for wider consultation to discuss the issues further with the JWC. A meeting has been arranged for mid August.