High-seas piracy triggers higher insurance rates for shippers
example, would add 2,700 miles to the voyage and boost annual fuel costs by about $3.5 million, according to the U.S. Department of Transportation’s Maritime Administration. In addition, it said using that route would mean the ship could make only five round trips a year instead of six, cutting delivery capacity by 26 percent.
European economies stand to absorb most of any extra expense. The Maritime Administration says more than 80 percent of trade moving through the gulf is with Europe. Some shipping companies, such as the world’s largest, Maersk, have decided to take their oil tankers around the Cape of Good Hope, others have been reluctant to shoulder the extra expense, according to Graeme-Gibbon Brooks, the managing director of Dryad Maritime Intelligence Service, based in the English port city of Southampton. “We have had a couple of phone calls from people saying: ‘It might well be safer to go around the Cape of Good Hope, but our competitors are not doing it,’” Brooks said. “The problem with any diversion, be it through the south of the cape or elsewhere, is that it’s going to have a commercial impact which will ultimately be borne by the consumer.”
One analyst said the global downturn may be making the southern route more attractive. “Because there are so many vessels plying the seas right now, it makes sense to take the leisurely way around Africa. … You’re removing capacity from the industry and helping to put upward pressure on freight rates,” said Jim Wilson, the Middle East correspondent for Fairplay International Shipping Weekly magazine.
As a result, demand for fuel on the West coast of Africa has surged as more ships coming from the east need to refuel after circling the cape, he said. At the same time, Egypt’s revenues from Suez traffic are down sharply from last year. The pirate attacks have begun to spook some mariners. Noel Choong, head of the International Maritime Bureau’s piracy reporting center in Malaysia, noted that the crew of one ship recently refused to travel from Mombasa, Kenya, to South Africa for fear of being attacked.
Still, as security consultant David Johnson noted, taking the long way around to avoid the Somali coast doesn’t guarantee safety from pirates. The Saudi supertanker Sirius Star was captured by pirates six months ago while deep in the Indian Ocean, far from the pirates’ traditional hunting ground. “Whichever way you go you’re going to run into pirate hotspots somewhere down the line,” said Johnson, the director of U.K.-based EOS Risk Management.
Insurance companies have also taken note of the pirates’ increased range:
“Until recently, insurers regarded vessels as being relatively safe if they kept a reasonable distance from the Somali coast,” said Smith, the manager at Lloyd’s Market Association. Writing in the February-March issue of Cargo Security International, he said the situation had now changed.
The latest pirate attacks come at a particularly challenging time for the shipping industry. Dubai-based DP World, one of the world’s biggest port operators, warned last month that a falloff in global trade that began late last year “shows little sign of easing” because of the global recession.
Drewry Shipping Consultants Ltd. recently predicted cargo container shipments globally will drop 4.5 percent this year following decades of constant growth.
