Drop in Premiums

Commercial shipping lines have lowered their premiums following suppressed piracy off the coast of Somalia, raising the hopes of consumers for cheaper commodities.

Drop in shipping premiums heralds cheaper import bill

By Bozo Jenje and Allan Odhiambo, Business Daily

Summary
  • Most shipping lines have now reviewed their risk surcharges to between $400 (Sh33,600) and $500 (Sh42,000) down from the previous average of $600 (Sh50,400) when piracy attacks on routes around the Gulf of Aden threatened to cripple the industry.
  • Incidents of piracy have dipped substantially with most commercial ships hiring private security firms to escort the vessels besides the regular navy patrols.
  • International navies have stepped up pre-emptive action against pirates, including strikes on their bases on the Somali coast while shipping firms are increasingly using armed private guards and other measures such as watchtowers and razor wire.
  • However, private companies have assumed a bigger role in the fight against Somali pirates as global navies reduced their counter-piracy deployments on Indian Ocean, a new report by Australia’s Lowy Institute for International Policy said.
  • According to Lowy Institute, the private security firms provide armed contractors and armed convoy escort vessels. Contractors are typically ex-Navy personnel with shipping industry – accredited safety and training qualifications, and work in teams of between 3 and 6 people.
  • The private maritime security teams offer counter-piracy services, including hardening of vessels in accordance with industry standards, crew counter-piracy training, and preparation of onboard “panic rooms” used during a pirate attack.
  • Individual contractors earn up to $500 (Sh42, 000) per day and companies can charge-out contractors for $1000 (Sh84,000) per day.
  • Private armed patrol boats are attractive to shipping companies because they do not require weapons to be carried on commercial ships, allowing them innocent passage through territorial waters.

 

Commercial shipping lines have lowered their premiums following suppressed piracy off the coast of Somalia, raising the hopes of consumers for cheaper commodities.

Most shipping lines have now reviewed their risk surcharges to between $400 (Sh33,600) and $500 (Sh42,000) down from the previous average of $600 (Sh50,400) when piracy attacks on routes around the Gulf of Aden threatened to cripple the industry.

“Things have stabilised and most ships are no longer slapping piracy related surcharges on freight costs,” said Gilbert Lagat, CEO of Kenya Shippers Council (KSC).

The hijackings had sharply pushed up freight costs as insurance companies charged higher premiums to match the heightened risk.

Freight costs also increased after some shipping lines opted for longer alternative routes round the Cape of Good Hope in South Africa.

Incidents of piracy have dipped substantially with most commercial ships hiring private security firms to escort the vessels besides the regular navy patrols.

Statistics by International Maritime Bureau (IMB) show that in the first half of this year there were only 69 incidents involving Somali pirates, compared with 163 in the corresponding period last year.

At the time, pirates operating in the busy shipping lines routes off the Gulf of Aden and the northwestern Indian Ocean netted $160 million in ransom fees, and cost the world economy some $7 billion in opportunity costs.

“The naval actions play an essential role in frustrating the pirates. There is no alternative to their continued presence,” said IMB director Pottengal Mukundan.

International navies have stepped up pre-emptive action against pirates, including strikes on their bases on the Somali coast while shipping firms are increasingly using armed private guards and other measures such as watchtowers and razor wire.

However, private companies have assumed a bigger role in the fight against Somali pirates as global navies reduced their counter-piracy deployments on Indian Ocean, a new report by Australia’s Lowy Institute for International Policy said.

“Because governments have struggled to contain the spread of piracy in the Indian Ocean, shipping companies have turned to private military security companies to guarantee the safety of their crews and cargo,” said James Brown, a military fellow at the Institute.

It is projected that piracy would remain low despite the end of the monsoon season that is characterised with violent waves and winds, which discourage pirates.

Over 140 private companies now provide armed protection for ships in the Indian Ocean, the institute said, while at least 2,700 individual contractors are employed as armed guards on ships and 18 floating armouries are operating in waters near the Gulf of Aden.

Click here to access part two of : Drop in shipping premiums heralds cheaper import bill

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