Business Bayani PH

The Red Sea, a vital maritime route connecting the Mediterranean Sea to the Indian Ocean, is facing a significant threat to international trade from the Houthi movement. Legal expert Efrat Shuster, founding partner of Shuster Law Firm, highlighted these risks in a recent CTech opinion piece published on December 18, emphasizing the urgent need for diplomatic solutions to ensure the smooth flow of goods. She stressed that failure to address this threat promptly could have far-reaching consequences for businesses and economies worldwide.

The Houthi movement in Yemen causes regional instability, often engaging in aggressive acts, like targeting commercial vessels in the Red Sea. These actions not only risk the safety of shipping routes but also cast doubt on the reliability of international commercial agreements.

The Houthi’s attacks and illegal seizures of vessels in the Red Sea, a crucial trade route for countries worldwide, are causing disruptions in the transportation of goods. This not only puts the lives and safety of those on the vessels at risk but also leads to delays in transport and inevitable financial losses for businesses involved in international trade.

According to Shuster, rising security risks in the Red Sea may raise insurance costs for vessels. Insurers may adjust premiums due to the added threat from the Houthi movement, affecting the overall expense of international trade.

In global commerce, Incoterms are crucial for defining roles in moving goods. Houthi threats in the Red Sea add complexity to interpreting and applying these terms in contracts. 

For instance, terms like FOB (free on board) and CIF (cost, insurance, and freight) in Incoterms define when risk shifts from seller to buyer. Due to heightened security risks, businesses may need to review and adjust these terms for the increased threat in the Red Sea.

Shuster explained this might result in a review of how costs are shared, insurance coverage, and when risk is transferred, creating more uncertainty in international commercial agreements. Clear contractual terms become crucial, and parties involved must carefully consider and address the potential impact of security concerns on implementing Incoterms amidst evolving geopolitical risks.

She also mentioned that disruptions in the Red Sea could affect more than just international trade businesses, spreading to various industries. 

“Businesses may face challenges in maintaining efficient supply chains, leading to potential shortages and increased costs. Companies may become hesitant to enter into long-term contracts or investments, fearing the unpredictability caused by ongoing security concerns,” she said.

Amidst these challenges, the International Transport Workers’ Federation (ITF) is emphasizing the paramount importance of ensuring the safety of seafarers. Following the attacks on commercial ships in the Red Sea, the ITF acknowledges the steps taken by leading shipping companies, including Maersk, Hapag Lloyd, and MSC, to stop using the Red Sea. BP and oil tanker group Frontline have also temporarily halted traffic through the Red Sea.

Rerouting vessels away from the Red Sea is a significant step, even though it may extend the journey by over 3,000 nautical miles, potentially adding weeks to the time seafarers will be at sea. 

Stephen Cotton, ITF general secretary, said, “The primary concern of the ITF is the safety of seafarers, and we would expect shipping companies to share that concern.” He emphasized that the focus should be on the health and safety of seafarers rather than the cost of oil and transport.◼