Costs of dealing with Horn of Africa piracy to balloon

28 May 2012

AT Kearney-GPCA report says pirates are becoming more violent and increasing range

The costs of dealing with piracy in the Horn of Africa are set to increase despite a fall in the amount of ships captured, according to a new report.

The overall cost of piracy in 2010 and 2011, above ransom demands, was estimated to be in a range of $5.6-12bn with at least half occurring in the Horn of Africa.

In a joint report, consulting firm AT Kearney and the Gulf Petrochemicals & Chemicals Association (GPCA) said the number of ships captured in the area halved in 2011 to 22, while the amount of incidents reported rose 10 per cent to 147.

“As ship owners become increasingly apprehensive about sailing through piracy-affected waters, a capacity shortage is growing. For those vessels willing to tackle the voyage, new costs continue to balloon, both in terms of time and money,” said the report’s authors.

The biggest impacts of piracy on shipping costs are insurance premiums, delays and crew costs, and security equipment and protection costs. Significant costs are caused by re-routing vessels across the Cape of Good Hope or waiting to join navy-protected groups.

At the same time, the average ransom requested per captured ship increased to $7.5m in 2011 from $5.4m the previous year. Ransoms are not usually covered by insurers.

The majority of pirates operating in the Horn of Africa are based in Somalia and the increased naval response in the Gulf of Aden shipping lane has driven pirates to increase their range into the Indian Ocean and the Gulf of Oman.

Last week, a cargo vessel operated by Danish group Maersk came under attack northeast of the UAE emirate of Fujairah. Incidents so close to the Strait of Hormuz – the key shipping lane for Gulf oil and petrochemicals exporters – are rare, but increasingly common.

“As navies and individual vessels have demonstrated increased resistance, pirates have become considerably more violent and are changing their approach,” says AT Kearney managing director, Middle East and report author Dan Starta. “Somali pirates are acting further off the coast of Somalia, and are now in the Gulf of Oman, positioning themselves more strategically.”

The report says that the long-term economic development in Somalia is essential to reducing the levels or piracy in the region.

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