Israeli imports at risk from war

The war with Hamas triggered a crisis in maritime trade routes, with major shipping companies canceling stops in Israel due to escalating insecurity.

The recent tension and escalation of conflict between Israel and Hamas has significantly changed the nation’s maritime logistics and port operations. A few days ago, amid growing uncertainty, a prominent Taiwanese cargo company invoked the force majeure clause, canceling the arrival of its ship, the Ever Cozy, to the port of Ashdod due to safety concerns. This port, 25 miles from Tel Aviv, is critical to the Israeli economy, facilitating the crucial flow of commodities and essential goods.

With its proximity to the Gaza border, just 31 miles away, and in the middle of a sky riddled with shells, the Evergreen Line shipping company deemed Ashdod no longer a safe destination. This decision forced the Ever Cozy to divert towards Haifa, further north. This sudden change overloaded the port of Haifa, which had to handle additional traffic volume caused by the situation in Ashdod.

Concern is spreading among other shipping companies and their insurers, questioning the viability of maintaining operations in Israel’s ports. Currently, sailing in Israeli waters is considered high risk, and insurance premiums have increased several hundred percent. The threat of Israel’s possible ground invasion of Gaza only complicates matters further, making trade routes even more precarious and costly.

This situation is especially alarming given Israel’s dependence on imports. According to a 2022 report from the  United States Department of Agriculture, Israel needs to import a wide range of essential products, from sugar to grains, and its meat industry also relies heavily on imports. The reality is that Israel imports almost three times as much food and agricultural products as it exports, making the functionality of its ports crucial.

The financial implications are also significant. For example, shipping companies currently pay a war risk premium of 0.65% of the ship’s total value to dock in Ashdod. This contrasts with rates in other ports considered at risk, such as Tripoli with 0.4% or even Mogadishu with 0.5%. At the high end, Black Sea ports in Russia and Ukraine face even higher premiums, reaching 1%.

The high rates in the region are a clear reflection of the fear merchant ship operators face of possible damage in Israeli waters. “The situation is similar to what was experienced in Ukraine, where ships entered but could not leave,” comments Neil Roberts of the Joint War Committee, emphasizing the critical security assessment that Israel currently faces.

Shipowners and insurance companies are constantly reviewing Israel’s defense capabilities. “The assessment focuses on how Israel can counter these attacks,” says Simon Lockwood of WTW, a leading global insurance broker. Concern intensifies as Hamas has managed to carry out multiple attacks, skyrocketing war premiums by hundreds of percent for journeys to Israeli ports.

This situation has led shipping companies to pass these additional costs on to their customers, with reported surcharges of up to  $ 100  per standard container. “The cost of war risk is always passed on to the customer,” explains Lockwood, also noting that it all depends on the risk appetite of each company.

For Israel, the way insurers and shipping companies perceive this conflict and the potential expansion of the war in the region is crucial. The country relies heavily on maritime trade due to its geography. There were already complications docking in Israeli ports, even before the current conflict, with operational delays of ships waiting weeks to disembark.

The threat is amplified by the likelihood that Hezbollah, the Lebanon-based militia, will enter into a confrontation, putting Haifa, one of the main ports, at direct risk. “The threat to Haifa would escalate dramatically if Hezbollah intervenes,” warns a report by Dryad Global, a consulting firm specializing in maritime risks.

Faced with this tension, Prime Minister Benjamin Netanyahu has responded severely, promising disproportionate retaliation against Hezbollah and  Lebanon in the event of intervention. However, as recent border clashes demonstrate, Netanyahu’s words have not deterred the militia.

Meanwhile, the United States has begun evacuating its citizens from  Lebanon, underscoring the seriousness of the situation. Although Netanyahu’s warlike declarations do not intimidate Hezbollah, they do worry shipping companies and insurers. Although not politically inclined, these companies are essential to Israel’s economic survival. If they decide that Israeli ports are too dangerous, Israel could face a significant crisis, potentially being left without vital supplies.