‘War Risk’ Rating for Straits of Malacca Raises Shippers’ Costs

August 15, 2005

The recent decision by the London-based Joint War Committee to include the heavily traveled Straits of Malacca on its list of ‘war risk’ areas has caused concerns among shippers that transport costs will rise due to increased insurance premiums.

The 500-mile (800-km.) long sea lane, which connects the South China Sea and the Indian Ocean between Malaysia and the Indonesian Island of Sumatra, is one of the most heavily in the world. On an average day more than 11 million barrels of oil are in transit through the strait. An estimated 50,000 ships pass through it each year.

A bulletin on the world’s “Choke Points” from the U.S. Energy Information Administration (EIA) says it is “considered to be the key choke point in Asia. The narrowest point of this shipping lane is the Phillips Channel in the Singapore Strait, which is only 1.5 miles [2.4 kms] wide at its narrowest point. This creates a natural bottleneck, with the potential for a collision, grounding, or oil spill (in addition, piracy is a regular occurrence in the Singapore Strait). If the strait were closed, nearly half of the world’s fleet would be required to sail further, generating a substantial increase in the requirement for vessel capacity.”

While piracy in the straits and surrounding area has been an ongoing hazard for years, more recent threats from terrorist groups have added a new dimension to the risks involved in the area. This reassessment led the JWC to add the Straits of Malacca to its list of 21 high risk areas that are seen as particularly vulnerable to the perils of war, strikes and terrorism.

Shippers have complained of the added costs caused by the decision, but a report from Reuters cited MarshMac managing director Ken Alston as indicating that they would be minimal. Various shipping interests are set to meet with JWC representatives tomorrow, Aug. 16, to try and get the decision reversed.

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