Certain enterprises are actively seeking to circumvent the Red Sea and opt for overland shipping routes across the Arabian Peninsula, prompted by security concerns arising from attacks by Yemen’s Houthi rebels. 

Trucknet Enterprise Ltd., an Israeli software startup, is presently transporting goods from ports in the United Arab Emirates (UAE) and Bahrain overland through Saudi Arabia and Jordan to Israel, extending onwards to Europe. According to Bloomberg, cargo from various Asian countries, including India and China, has already been redirected along this route in recent weeks.

In response to the escalating situation in the Red Sea, other companies are also considering alternatives. Reuters reported in December last year that Electrolux, a Swedish home appliance manufacturer, established a task force to explore alternative routes. Additionally, the French food company Danone indicated its intention to investigate different sea and road routes should the challenges in the Red Sea persist.

Bloomberg also reported that the German shipping giant Hapag-Lloyd is actively considering the establishment of a connection between Dubai and two ports on the western coast of Saudi Arabia, near the Red Sea. Additionally, they are exploring a route connecting Dubai to Jordan. It is worth noting that Jordanian officials had previously refuted any involvement in a land bridge with Israel, as reported by the state-run news outlet Petra in December. This denial came in response to reports in Israeli media suggesting the existence of such a route.

The Houthi rebels in Yemen have been targeting ships in the Red Sea since the onset of the Gaza war in October 2023. The rebels assert that their targets are associated with Israel, although many of the vessels targeted have no known connections to the country.

Why it’s significant

The ongoing Houthi attacks have significantly disrupted global shipping operations. Al-Monitor reported a notable decline in trade volume through the Suez Canal in January, while the International Monetary Fund revealed a nearly 30% reduction in shipping via the Red Sea since the beginning of the year, as reported by Agence France-Presse.

In response to the threats in the Red Sea, some major shipping companies have opted for more expensive and time-consuming routes around Africa to avoid the affected area. Danish shipping giant Maersk recently announced a temporary halt to all shipping activities through the sea. 

While land-based shipping successfully evades Houthi attacks in the Red Sea, it comes with its own limitations. Hanan Fridman, CEO of Trucknet, highlighted to Bloomberg that trucks have significantly lower cargo capacity compared to ships, for instance.

Plans on establishing new routes

The exploration of alternative routes to bypass the Red Sea and the Suez Canal had been gaining traction even before the onset of the war. As of July, Al-Monitor confirmed that the construction of a land bridge between Israel and Saudi Arabia had already commenced.

In September, the UAE, India, the United States, Saudi Arabia, and several European states jointly announced the establishment of the new India-Middle East-Europe Corridor. This transit corridor is designed to rival China’s Belt and Road Initiative.

Meanwhile, Iran, Russia, and India have been collaboratively working on the development of the International North–South Transport Corridor for several years. The corridor encompasses shipping, rail, and road routes from India through Iran, extending to Russia and Europe, effectively circumventing the Suez Canal.

Partner with TFI to overcome the Red Sea Crisis

Drawing on more than thirty years of operational expertise in navigating disruptions to global trade routes, TFI offers a flexible and reliable transportation solution through the UAE. Leveraging the Jebel Ali Port in Dubai as our primary hub for receiving shipments, we then facilitate cross-border transportation to the Gulf countries. Tailoring our approach to meet your specific timeline and budgetary needs, we deploy air, land, or rail freight to seamlessly transport the cargo to its ultimate destination.

Global trade is dependent on the movement of goods from A to B and in today’s trade, more than 800+ million containers criss-cross the globe carrying various cargoes.

Global trade is dependent on the movement of goods from A to B and in today’s trade, more than 800+ million containers criss-cross the globe carrying various cargoes. Containers move by road or rail before it gets to the port for the sea movement. During transit, there are several forces acting on the cargo due to the movement of the truck or train including:

· Gravitational force

· Frictional force

· Random Deceleration

· Random Acceleration

· Centrifugal force

· Vibratory force

· Longitudinal and horizontal forces

· Transverse horizontal forces

These forces can have an impact on the container and the cargo inside the container, especially if the cargo has not been packed properly and it shifts inside the container during transportation.

The movement that happens to a container is worse when it is at sea as unlike road or rail movement, there are a few additional ways in which your cargo moves inside the container while at sea.

Any movement of cargo inside the container can cause cargo damage and as per claim statistics, cargo damage is the leading cause of cargo claims.

Apart from loss or damage of cargo in transit, risks due to loss or damage of cargo may also be attributable to

· Cargo theft

· Fire or explosion

· Ship grounding or sinking

· Overturning or derailment of land transport

· Collision or accidents at sea or on land

· Ship discharges cargo at another port due to distress

· General average sacrifice

· Jettison

· Water ingress

· Containers falling overboard

· Loading/offloading accidents

When such loss or damage happens, the normal recourse available to the BCO (Beneficial Cargo Owner – could be a direct exporter, direct importer, seller, or buyer) is to claim for the loss from the insurance companies who have insured the cargo.

Cargo insurance is a type of insurance that compensates the insured against loss or damage to cargo depending on the type of cover taken.

However, in many cases, insurance is considered a grudge purchase. Something no one wants to pay for unless they must and because they have a misguided view that they need not insure their cargo.

This approach is totally incorrect. As the name suggests, the BCO is the owner of the cargo, and therefore it is in their best interest to safeguard their cargo and cover themselves sufficiently for such exigencies.

No one can predict when and how cargo damage can happen and if you, as a BCO have not insured your cargo then you could end up losing your money and cargo in case of any damage or loss.

As a case in point, you can look at the many incidents that have happened recently in shipping where containers have fallen overboard while at sea, ships catching on fire, and ships running aground. No one anticipated these disasters.

This is besides the regular issues of cargo theft, pilferage, seal breakage, and road accidents.

Responsibility

Much BCOs work under the impression that once they hand over their cargo to a carrier or freight forwarder, they will cover/insure their cargo while it is under their possession.

While the carrier or freight forwarder has their own insurance covers, it does not cover the cargo or the value of the cargo.

Their insurance cover is to cover their “liability” while the cargo is under their possession.

Carriers are covered by their P&I club covers, whereas Freight Forwarders will have Liability insurance covers.

The bill of lading terms and conditions clearly indicates the conventions that cover the contract of carriage and the bill of lading. Even if the carrier is legally liable, their liability is limited and the liability varies based on the convention used.

In most cases, this liability amount will be much lower than the value of the cargo. The limit of this liability is mentioned on Page 1 of the bill of lading which has all the terms and conditions associated with the carriage of the cargo.

BCOs must not assume that nothing will happen to their cargo or that the Carrier or Freight Forwarders are responsible to insure the cargo.

The logic is simple, the cargo is owned by the BCO and they must insure it.

Types of Insurance

It is also equally important for the BCO to ensure that they are sufficiently covered as there are several types of insurance covers in the market and not all might suit their requirements.

There are different types of cargo insurance available but the most common or comprehensive Institute cargo clauses – A, B, and C which cover different aspects of cargo in transit.

These clauses specify which items in the cargo mix are covered in case of any loss or damage to the shipment and the extent of the coverage is directly proportionate to the insurance premium.

· Institute Cargo Clause C has the lowest premium and consequently offers the most restrictive coverage.

· Institute Cargo Clause B is a bit more expensive than C, but the coverage is higher than C. The policyholder may cover some of the valuable items or part of the cargo.

· Institute Cargo Clause A offers the widest coverage – said to be “All Risks” but at a higher premium.

A Clauses – Risks covered

1. loss of or damage to the subject-matter insured reasonably attributable to

2. fire or explosion

3. vessel or craft being stranded grounded sunk or capsized

4. overturning or derailment of land conveyance

5. collision or contact of vessel craft or conveyance with any external object other than water

6. discharge of cargo at a port of distress

7. loss of or damage to the subject-matter insured caused by

8. general average sacrifice

9. jettison

B Clauses – Risks covered

1. All the above plus:

 loss of or damage to the subject-matter insured caused by

 general average sacrifice

 jettison or washing overboard

 the entry of sea lake or river water into vessel craft hold conveyance container or place of storage

2. total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft.

A Clauses – Risks covered

This clause covers all risks of loss of or damage to the subject-matter insured except as provided in Clauses 4, 5, 6, and 7.

All the clauses cover General Average plus “Both To Blame” collisions in the case where containers are lost at sea due to the collision of two ships.

Conclusion

41 ships were lost worldwide in 2019 in maritime disasters/incidents with high levels of trade, busy shipping lanes, older ships, and bad weather said to be the major factors for these losses.

In the recent past several big ships have lost containers and/or caught on fire – Maersk Honam, Yantian Express, ONE Apus, Maersk Essen, Ever Liberal, and a few others.

In all these cases, there would have definitely been some shippers who did not consider insuring their cargo and are now facing consequential losses.

Do not be that BCO – insure your cargo for your own peace of mind.