South Korea raises port security, no maritime disruption

South Korean port agents urged oil tankers and cargo vessels travelling near the maritime border with North Korea to take extra security precautions on Wednesday after Pyongyang's shelling of a South Korean island.

Tuesday's bombardment of Yeonpyeong island, one of the most serious incidents since the Korean War ended in 1953, has not slowed shipping traffic along the coastline of Asia's fourth largest economy, traders said.

Freight futures initially spiked on news of the attack on Tuesday as investors worried about possible shipping delays, but fell back hours later.

"While tensions are high, it is the current assessment that there are no significant consequences for commercial vessels calling at South Korean ports beyond the increased chance of disruption and delays resulting from sanctions directed at North Korea," said Jakob Larsen, maritime security officer with shipping association BIMCO.

Larsen said the situation was "tense" and in view of a potential risk of escalation, the assessment "could change at short notice".

A US aircraft carrier group set off for Korean waters on Wednesday in a move likely to enrage Pyongyang and unsettle its ally, China.

The ports of Incheon, Pyongtaek and Tong-Yeong, all located near the disputed border with North Korea, have raised their security to Level 2, adding patrol officers to search more ships and facilities, port agents said. The highest security is Level 3.

"Ships are asked to also maintain the same security level as the ports with more watchmen and security searches until further notice," said Minchol Ji, port state control inspector at Incheon.

With the exception of the added security, maritime traffic operated as normal with at least 70 oil tankers, dry bulk carriers and container vessels located at the port of Incheon, around 100 km from where the shelling took place in Yeonpyeong.

"I haven't heard of any real impact yet," said a Shanghai-based shipbroker. "It all seems to be functioning as per normal with much closer attention to news updates."

South Korea's top refiner SK Energy and KOGAS, the world's biggest buyer of liquefied natural gas, both said that operations were not affected by North Korea's artillery strike.

"There are no disruptions at all in our main shipping ports, both in the west and east. Everything is running as usual," said a spokesman with SK Energy.

South Korea is the world's fifth-largest crude importer and No 2 buyer of liquefied natural gas. Imports of LNG typically surge from October to January because of increased winter demand for heating.

The country's three largest LNG import terminals were located at ports where security has been heightened.

"There would probably have to be an all-out war for shipping in the region to be significantly affected and that would probably be limited to that area," said Teddy Tsai, shipping analyst for DnB Nor Markets in Singapore.

"If things worsen, you may have a war risk premium placed on insurance but that would be passed on to clients," he added.

Neil Smith, senior manager of underwriting for Lloyd's Market Association, said it was too early to say whether insurance premiums would increase.

Freight forward agreements for the December contract on the benchmark Middle East to Japan crude tanker route closed at W68.25 on Tuesday, down 5.75 points from the previous session in the Worldscale measure of freight rates. The contract was trading around W66.50 on Wednesday.