War risk premiums surge up to 50% amid ME tensions, hitting Sri Lanka trade

• Rerouting via the Strait of Hormuz disruptions is increasing freight rates, delaying shipments, and raising Sri Lanka’s import costs
• Apparel, tea, rubber exporters facing margin erosion, longer delivery times, and reduced competitiveness

By Shannine Daniel

Gayani de Alwis

War risk insurance premiums for vessels operating in the Red Sea and the Persian Gulf have surged by up to 50 percent with extreme cases reaching as high as three percent of vessel value per voyage due to recent escalations in the ongoing Middle East conflict, noted Women’s Chamber of Industry and Commerce Sri Lanka (WCIC) Chairperson Gayani de Alwis.

Moreover, according to de Alwis, geopolitical tensions around the Red Sea and the Strait of Hormuz are forcing global shipping lines to reroute, significantly increasing freight and fuel costs and driving up global freight rates.

Higher freight rates have resulted in a direct and severe impact on imports of energy and bulk commodities.

For Sri Lanka, this means an immediate and sharp rise in landed costs due to elevated freight charges, insurance premiums, and delays.

Fuel remains the country’s biggest vulnerability, with supply disruptions posing a greater risk than price increases alone, de Alwis, who is also the former President of the Chartered Institute of Logistics and Transport Sri Lanka (CILT), asserted.

“Buying a product at a higher price is one issue, but disruption is another problem. Supply chain disruptions are inevitable for the industry,” she said, speaking at a recent webinar organised by the International Chamber of Commerce Sri Lanka (ICCSL) and the Association of Chartered Certified Accountants (ACCA).

She warned that these disruptions would disproportionately impact small and medium-scale enterprises (SMEs), while pushing up prices of food, fertiliser, and consumer goods.

“There will be a huge impact on profit margins as well. Exporters will face a dilemma, as they will have to absorb costs and lower their margins,” she noted.

De Alwis further explained that rising freight and insurance costs, along with longer shipping routes, are increasing per-container costs and extending working capital cycles, while delivery delays and reliability issues add to operational challenges.

“The export sector, especially apparel, tea, and rubber products, will face margin erosion and reduced competitiveness,” she said, noting that exporters may be forced to either absorb higher costs or pass them on to buyers, risking market share.

With the Middle East crisis persisting despite ongoing diplomatic efforts, she added that businesses should brace for continued volatility in trade conditions and cost structures.