Cargo Owners Warned
The increasing number and scope of pirate attacks particularly along Africa’s coastline has become a multi-billion dollar problem costing various governments and the shipping industry up to $7 billion last (R52.7bn) a year.
Cargo Owners Warned About Piracy Risks
The recent piracy attack on the MV Free Goddess, a Greek-owned bulk carrier worth over $ 8 million, once again highlights the need for ship and cargo owners to safeguard both their assets and people through an effective risk management strategy.
The increasing number and scope of pirate attacks particularly along Africa’s coastline has become a multi-billion dollar problem costing various governments and the shipping industry up to $7 billion last (R52.7bn) a year according to a recent report. The study also showed that world governments are spending at least $1.3bn trying to control the problem, a figure dwarfed by shipping industry costs estimated at up to $5.5bn.
Adam Samie, CEO of Cape Town-based Lion of Africa Insurance, says it is crucial for those operating in the marine industry to manage the financial risk of piracy and to reduce their potential exposure to liability. “Should a vessel be pirated, costs are incurred almost immediately. Prior to finalisation of ransom settlement, investigators, legal counsel, average adjusters etc. are brought in to assist with ransom negotiations, determining the value of the vessel and the cargo she carries as well as potential consequential risk to lives and the environment.
“When piracy occurs, it can take months before the pirates start with initial communications. Once it has been confirmed that a piracy has indeed occurred, the general practice thus far has been for the ship owner to declare a “General Average”. According to Samie, some settlements of ‘General Average’ have resulted in cargo owners having to pay more than 50% of the value of their cargo on the vessel. “This is a significant financial burden to bear, “he says.
Samie warns that for any business without adequate marine insurance cover in place, this kind of exposure can be potentially devastating.
Further costs may also include the cost of all 3rd parties involved, such as negotiators and average adjusters etc. Consequential losses and trade disruptions are also a huge risk factor. “A hostage situation can take many months to be resolved. This business interruption can be very costly to an organisation if they are not covered for it,” says Samie.
However, according to Samie there are solutions available in South Africa to reduce exposure to such risks. Some companies offer crisis management in situations where lives are involved, manning vessels to deter piracy through passive means and tracking movement of a vessel and its cargo. There are also companies who provide specialist training to crew who sail on dangerous waters.
Furthermore it is also essential that the vessel has safety precautions in place such as increasing security on board like antipiracy watch, barbed-wire fencing, all emergency numbers entered into a satellite phone and ensuring fire hoses are in place and charged for immediate use.
Standard marine insurance does cover piracy and it is possible to get a policy that covers both the cargo and the ship. However, in South Africa, Samie says that companies typically only need to cover their cargo as it is transported by independent shipping companies. These large ships are generally covered by Lloyds of London because of the substantial value of the hull.
Samie says another concern is that marine insurers don’t always fully understand the risks faced by companies transporting goods by sea. “It is therefore important that you find an insurer that takes into consideration all aspects of the risk and advises accordingly on things that can go wrong,” says Samie.
Source: Cape Business News