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Marine Insurance
Wednesday, July 1, 2009
Cargo crisis

The cost of sending ships and cargo through the Gulf of Aden, transit way for a third of the world's commerce, has soared over the past year. The knock-on effect of this will be an increase in the price of goods available to the already-burdened consumer.

According to Jose Fonseca, Regional Marine Manager, AIG South Africa, rocketing shipping costs are due to the huge increase in piracy off the coast of Somalia and the resulting rise in insurance premiums and other costs associated with counteracting pirate attacks.
  “Somali pirates have grown bolder, more desperate and are becoming increasingly sophisticated in their attacks,” says Fonseca. “Ships are typically held for some time before a ransom, which averages $1million, can secure their release.”
Each day, $200 million worth of oil passes through the area and pirates are currently holding 14 ships for ransom. Generally, Somali pirates prefer slower, lower vessels that are easier to board, but with better equipment — vessels and firearms — they are expanding their range of targets.
A report issued by the International Chamber of Commerce's International Maritime Bureau (IMB), shows a record 102 attacks occurred in the first three months of 2009, double the number in the same period in 2008. This is due almost entirely to increased Somali pirate activity in the Gulf of Aden and off the east coast of Somalia. The two areas accounted for 61 of the 102 attacks during the first quarter compared to six incidents in the same period in 2008.
In response to this heightened risk, insurance companies have increased premiums for sending cargo shipments through the Gulf of Aden more than 10-fold from a year ago.
The increase in attacks adds to shipping’s financial burden in ways besides insurance premiums too. The added risks and cost of transporting cargo through the Gulf of Aden are pushing companies to consider alternate routes, such as travelling around the Cape of Good Hope, which adds an extra two to three weeks to voyage time.
Re‐routing, however, presents a financial risk for shippers as it entails extra sailing time, which burns more fuel, and later cargo deliveries which incur significant extra costs in an already tough economic climate.
To avoid re-routing, governments and the maritime industry have to take steps to protect ships from being attacked. They may deploy a larger military presence in high-risk areas, hire private security guards, or install non-lethal deterrent equipment. But all these costs will ultimately be the burden of the tax-payer or final consumer.
The international community has deployed 50 warships to patrol the area in an effort to thwart pirate attacks.
“Hopefully this will make the Gulf of Aden safer for shipping companies,” says Fonseca. “But in the interim shipping costs are likely to increase and this cost will be passed on to the consumer.”

Copyright © Insurance Times and Investments® Vol:22.7 1st July, 2009
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