Maritime Proctor Blog

In the cinematic classic The Wizard of Oz, Dorothy, the Tin Man, and the Scarecrow must travel on the Yellow Brick Road through the Haunted Forest to reach the Emerald City.  During this journey, the three protagonists of the story speculate they will encounter wild beasts, which leads to one of the famous quotes of the movie: “Lions, and Tigers, and Bears, oh my!”[1]  Ultimately, the trio meets their fourth compatriot, the Cowardly Lion, in the Haunted Forest, and he poses no harm to them.

We learned in 2021 the importance of the Suez Canal and Red Sea to global shipping trade.  Approximately 12% of world trade flows through the Red Sea and Suez Canal.[2]  40% of trade between Asia and Europe passes through the Red Sea.[3]  To say this is an important shipping lane would be an understatement.

Unless our reader lives an analog[4] or Luddite[5] lifestyle, you likely are aware of the current conflict in the Middle East between Israel and Hamas. However, for the last nine years, another conflict on the Arabian Peninsula has been arguably as intense but with far less media attention.  We write, of course of the conflict in Yemen between the Government of Yemen and Houthi militia forces. 

The former group receives backing from Saudi Arabia and several other Middle Eastern governments, while the latter is primarily funded/supported by Iran.[6]  The Trump Administration designated the Houthis as a terrorist group in January 2021,[7] but in February 2021 the Biden Administration revoked that designation.[8]

In early December 2023, the Houthi militia began targeting commercial ships in the Red Sea with both drones and ballistic missiles.[9]  In addition to these soft targets, at the same time the Houthis used drones to harass a U.S. Navy Destroyer, the USS Carney, while the Carney responded to these attacks.[10]  While not making light of the situation, the Houthi decision to attack commercial vessels turned the Yellow Brick Road of the Suez Canal/Red Sea shipping lane into a trip through the Haunted Forest, with the potential for far more dangerous obstacles than a Cowardly Lion.

According to the Wall Street Journal, the Houthis took credit for these attacks.  A Houthi spokesperson, General Yahya Area, indicated to the Journal the attacks would continue until Israel halted its “aggression” in the Gaza strip.[11]

On December 18, the United States revealed a multi-national coalition of naval forces and assets to serve as protection for commercial vessels in the Red Sea.[12]  Despite this effort, named Operation Prosperity Guardian, the attacks continue.  Moreover, Reuters reported on December 28 of cracks already forming in this task force.[13]  Specifically, Spain and Italy issued statements distancing themselves from the task force, likely due to political pressure from voting blocs in those countries.[14]

On December 23, 2023, the New York Times reported over 100 attacks on commercial vessels in the Red Sea by the Houthis in the past month.[15]  The Associated Press reported on December 21 that the Houthis likely will attack any vessel in the Red Sea, including “container ships and oil tankers flagged to countries like Norway and Liberia.”[16]

For example, on December 26, 2023, the Pentagon claimed it shot down a dozen drones and several missiles launched by the Houthis against commercial vessels in the Red Sea.[17]  On December 30, 2023, Houthis attacked the Maersk Hangzhou – a vessel flagged in Singapore – in the Red Sea.[18]  U.S. Helicopters mobilized to protect the vessel, and ultimately sank three small craft used by the Houthis to attack the much larger vessel.[19]

However, reporting by the New York Times indicates the U.S. Navy has not, as of late December, conducted any retaliatory strikes on the known bases or facilities from which the Houthis launch their drones and ballistic missiles.[20]

Notably, the United States executed three separate strikes against Katib Hezbollah militants (also backed by Iran) and bases on December 25, 2023.[21] These strikes were in response to attacks by Katib Hezbollah that wounded three U.S. soldiers in Iraq/Syria on the same day. Yet, as of the date of this blog post, the United States has not struck the bases of the Houthis from where the drones and ballistic missiles originate.[22]

These attacks on commercial vessels, according to both the Wall Street Journal and New York Times, threaten peace talks between the Houthis and the Saudis to resolve the nearly 10 year civil war in Yemen. They also raise several maritime concerns.  We will leave the political considerations to other authors, and simply analyze the immediate maritime issues arising from the current situation.

-1-   The Short Term and Long Term Impacts on Global Shipping

If the attacks continue, it is likely more shipping companies will avoid the Red Sea entirely, increasing costs of voyages. 

In December 2023, several shipping companies suspended their routes through the Red Sea, citing increased risk to their vessels as well as cargo interests.[23]  Hapag-Lloyd re-routed its vessels through the Cape of Good Hope (adding significant time and expense to the voyages) and A.P. Moller-Maersk suspended its routes in the Red Sea for much of December[24] and suspended them until further notice after the attack on the Maersk Hangzhou.[25] 

BP and Frontline also suspended all Red Sea voyages for its vessels and cargo.[26]  Reuters’ reporting indicates additional costs of $1,000,000.00 USD in fuel costs alone for every trip between Asia and Northern Europe using the longer Cape of Good Hope route than going through the Red Sea and Suez Canal.[27]

In addition to increased fuel costs, one can expect the cost of insurance to rise.  S&P Global reported on December 13, approximately 10 days after the attack on the Carney, that war risk insurance rates tripled in the aftermath of these attacks, rising from 0.07% of a ship’s hull value to 0.2%.[28]  The following week, shipping insurance rates rose again to 0.5% of a ship’s hull value, according to Insurance Journal.[29] Thus, as Insurance Journal noted, a vessel costing $100,000,000.00 USD would have an insurance cost of $500,000 USD per voyage through the Red Sea and Suez Canal.[30]

These costs will most likely be passed from vessel owners to cargo interests.  In turn, the cargo owners will pass those costs along to the ultimate consumers of the goods in transit.

There also likely will be some short term problems with securing berths at Asian and European ports, because of the longer trips and scheduling problems from bookings anticipating shorter transit times.  This could lead, like we saw in 2020 and 2021, to logjams of vessels waiting for berths in various ports, and further delays in the availability of goods. 

-2-   If a Vessel is Damaged or Crewmembers Injured/Killed in a Houthi Attack, Does Insurance Cover the Loss?

Most hull policies contain an exclusion for acts of terrorism or acts of princes. Likewise, most insurance policies covering personal injury or death of passengers and crewmembers, as well as damage to cargo, contain a similar exclusion.  

Normally, vessel owners must purchase a separate policy covering war risks, in addition to their regular policies of insurance covering the vessel, cargo, and crew.  Sometimes, depending on the cargo, the cargo owners will also purchase their own insurance to cover the risks of war.  The most recent example of procuring additional coverage or policies can be found in the explosion of piracy near Somalia about 15 years ago.[31]

If vessel owners do not procure war risk coverage with appropriate terrorism/acts of princes buybacks into coverage, it is likely the insurers or carriers would deny coverage for any hull, cargo, or personal injury/wrongful death claims.  So, vessel owners would have to bear the costs directly, which likely mean increased costs to the end users/consumers of the goods in transit.

Also, the designation of the Houthi militia as a foreign terrorist group by the United States may also impact coverage.  Shippers would be wise to adequately protect themselves against whatever decision current and future administrations make in this regard.

Overall, vessel owners and cargo owners utilizing Red Sea shipping routes would be well-served to review their policies and coverage with their insurance brokers and counsel.  Failure to do so could create situations of direct exposure.

-3-   What Protective Obligations, if any, does the United States have to American-Flagged vessels?

From the Founding, the United States Navy has the responsibility to protect U.S. flagged vessels, commonly called the U.S. Merchant Marine.[32]  One of the earliest examples of this responsibility occurred during the Jefferson Administration, when Barbary Pirates[33] and associated vessels plundered American ships,[34] and even took sailors as slaves.[35]  Eventually, the United States went to war with the Barbary State of Tripoli from 1801-1805, ultimately winning the war through the efforts of the United States Navy and United States Marine Corps.[36]

United States Central Command issued a statement after the initial Houthi attack against the USS Carney via Twitter.  Therein, CENTCOM stated the attacks “represent a direct threat to international commerce and maritime security.  They have jeopardized the lives of international crews representing multiple countries around the world.”

To your author’s knowledge, there are not any American-flagged vessels currently in peril in the Red Sea.  However, if an American-flagged commercial vessel came under Houthi attack, or if American citizens crewing a non-U.S.-flagged vessel were injured or killed in such an attack, the Jones Act and other long-standing U.S. policy likely would require a more offensive response from our military.

Arguably, if the United States failed to act in an appropriate fashion with respect to such an attack, it could lead to undermining of the Jones Act.  This, in turn, would further decrease any incentive to fly a U.S. flag on a vessel, especially one engaging in international, as opposed to solely domestic voyages.

The concerns about the Jones Act are separate and independent from any concerns about attacks on the U.S. Navy.  According to the New York Times on January 1, 2024, “Yemeni political analysts, and the Houthis themselves, have dismissed the task force as an ineffective exercise that will little to deter the Houthis, who say that they crave a direct confrontation with the United States.”[37]  Retired Vice Admiral Kevin Donegan, who is a retired Fifth Fleet commander, believes a military response is necessary to avoid making Houthi attacks the new normal, as well as for deterrence against direct attacks on U.S. Navy vessels.[38]

[1] Your author does not know if the original script makes use of the Oxford Comma. However, as a devoted user of that essential punctuation device, I inserted the appropriate commas for proper grammatical syntax.

[2] Peter Eavis, Shipping Giant Maersk is Returning to the Red Sea After Houthi Attacks, The New York Times, December 27, 2023, at B5.

[3] Courtney Bonnell, How Houthis attacks on ships in the Red Sea are affecting global trade, AP.com, December 21, 2023, found at https://apnews.com/article/red-sea-yemen-houthis-attack-ships-f67d941c260528ac40315ecab4c34ca3

[4] For our younger readers, an analog cell phone was a communication device that used radio frequencies to transmit phone calls.  Technological advances, including but not limited to Apple’s creation of the iPhone in 2007, rendered analog technologies obsolete. 

[5] The Luddites were a group in 19^th Century England and opposed technological advances in manufacturing, particularly in the clothing industry, when factory owners used such advances to suppress wages.  See Richard Connif, What the Luddites Really Fought Against, Smithsonian Magazine, 2011, found at https://www.smithsonianmag.com/history/what-the-luddites-really-fought-against-264412/

[6] Stephen Kalin & Saleh al-Batati, War Imperils Prospects for Yemen Peace, The Wall Street Journal, December 28, 2023, at A9.

[7] https://press.un.org/en/2021/sc14410.doc.htm

[8] https://www.state.gov/revocation-of-the-terrorist-designations-of-ansarallah/

[9] Nancy A. Youssef & Saleh al-Batati, Commercial Ships, U.S. Destroyer Face Attack in Red Sea, The Wall Street Journal, December 4, 2023 at A8.

[10] Id.

[11] Id. (cleaned up).

[12] Phil Stewart & John Davidson, US Launches Red Sea Force as Ships Reroute to Avoid Attacks, Reuters.com, December 19, 2023, found at https://www.reuters.com/world/middle-east/us-launches-new-multinational-operation-safeguard-red-sea-commerce-2023-12-18/

[13] Phil Stewart, David Latona, & Angelo Amante, US allies reluctant on Red Sea task force, Reuters.com, December 28, 2023, found at https://www.reuters.com/world/us-allies-reluctant-red-sea-task-force-2023-12-28/

[14] Id.

[15] Helen Cooper & Eric Schmitt, Houthi Militia in Yemen Presents Special Challenge for U.S., The New York Times, December 23, 2023, at A8.

[16] Courtney Bonnell, How Houthis attacks on ships in the Red Sea are affecting global trade, AP.com, December 21, 2023, found at https://apnews.com/article/red-sea-yemen-houthis-attack-ships-f67d941c260528ac40315ecab4c34ca3

[17] Stephen Kalin & Saleh al-Batati, War Imperils Prospects for Yemen Peace, The Wall Street Journal, December 28, 2023 at A9.

[18] Michael Sustin, Maersk Pauses Transit Through Red Sea Until Further Notice After Attack on Ship, The Wall Street Journal, January 2, 2024 found at https://www.wsj.com/world/europe/maersk-pauses-transit-through-red-sea-until-further-notice-after-attack-on-ship-a494ae24?mod=Searchresults_pos1&page=1

[19] Michael Gordon, Gordon Lubold, & Nancy A. Youssef, U.S.-led Coalition Warns Houthis to Stop Ship Attacks, The Wall Street Journal, January 3, 2024, found at https://www.wsj.com/world/middle-east/u-s-led-coalition-warns-houthis-to-stop-ship-attacks-cfd490df?mod=hp_lead_pos2

[20] Helen Cooper & Eric Schmitt, Houthi Militia in Yemen Presents Special Challenge for U.S., The New York Times, December 23, 2023, at A8.

[21] Elliot Smith, U.S. Retaliates in Iraq after three U.S. troops wounded in attack, CNBC.com, December 25, 2023, found at https://www.cnbc.com/2023/12/26/us-retaliates-in-iraq-after-three-us-troops-wounded-in-attack.html

[22] Helen Cooper & Eric Schmitt, Houthi Militia in Yemen Presents Special Challenge for U.S., The New York Times, December 23, 2023, at A8.

[23] Andrea Figureas, Hapag-Lloyd Holds Back on Red Sea Routes, The Wall Street Journal, December 28, 2023 at B3.

[24] Id.

[25] See Footnote 18, supra.

[26] Phil Stewart & John Davidson, US Launches Red Sea Force as Ships Reroute to Avoid Attacks, Reuters.com, December 19, 2023, found at https://www.reuters.com/world/middle-east/us-launches-new-multinational-operation-safeguard-red-sea-commerce-2023-12-18/

[27] Id.

[28] Max Lin, Sameer Mohindru, Vickey Du, & Kelly Norways, War risk insurance rates jump on Houthi attacks; tanker FFA’s higher, S&P Global.com, December 13, 2023, found at https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/121323-war-risk-insurance-rates-jump-on-houthi-attacks-tanker-ffas-higher

[29] Alex Longley, Ruth Liao, and Yongchang Chin, Shipping Insurance for Red Sea Transit Soars After Mountin Houthi Attacks, Insurance Journal.com, December 20, 2023, found at https://www.insurancejournal.com/news/international/2023/12/20/752727.htm

[30] Id.

[31] See Laura L. Hardy, Ordering Chaos at Sea: Preparing for Somali Pirate Attacks Through Pragmatic Insurance Policies, 55 St. Louis U. L.J. 665 (2011).

[32] Lt. Cmdrs. John W. Aber Jr. & Paul W. Garber (U.S. Naval Reserve), The Navy and the Merchant Marine: Critical Coalition, Proceedings, March 1970, Vol. 96, Issue, 3, page 805.  Proceedings is the magazine of the U.S. Naval Institute.

[33] The Barbary states were regencies of the Ottoman Empire located on the Mediterranean Sea.  The Barbary States are in modern times known as the nations of Morocco, Algeria, and Tunisia.

[34] https://www.monticello.org/research-education/thomas-jefferson-encyclopedia/first-barbary-war/

[35] Christopher Hitchens, Jeffersons Quran, Slate, January 9, 2007, found at https://slate.com/news-and-politics/2007/01/what-jefferson-really-thought-about-islam.html

[36] https://history.state.gov/milestones/1801-1829/barbary-wars This is where the famous refrain in the Marine Corps Hymn “to the shores of Tripoli” finds its origin.

[37] David E. Sanger, Eric Schmitt, and Vivek Shankar, U.S. Helicopters Sink 3 Houthi Boats in the Red Sea, Pentagon Says, The New York Times, January 1, 2024, found at https://www.nytimes.com/2023/12/31/world/middleeast/us-houthi-clash.html?hpgrp=k-abar&smid=url-share

[38] Id.