Press article: Piracy: Safer seas
03 February 2014
Claims Executive, John Reay, was consulted for the following article, published in Post Magazine on 7 January 2014.
Piracy is on the wane. Despite the huge media attention given to high-profile incidents, statistics from the International Maritime Bureau show piracy hit a five-year low in 2012, with only 297 ships attacked globally, compared with 439 the previous year.
The first nine months of 2013 support this trend with only 188 incidents, the lowest third quarter figure since 2006.
But while statistics showing a net decline are indisputable, they mask a more complex picture, including shifting geographical hot spots and the emergence of new, potentially more violent, modes of piracy.
Despite the public perception – fuelled by blockbusters like this year’s Captain Phillips – that piracy is a Somali problem, a large portion of the most recent spate of attacks has been concentrated in the West African region. Of the 188 reported incidents of piracy and armed robbery against ships in the first nine months of 2013, Somalia only accounted for 10, according to the IMB.
In contrast, 43 reports were received for the Gulf of Guinea, including the hijacking of seven vessels that resulted in 132 crewmembers being taken hostage. Nigeria accounted for the bulk of these (29) including two vessel hijacks, 11 vessel boardings, 13 vessels being fired upon and three attempted attacks. Nigerian pirates alone accounted for 32 crew kidnappings, with Togo responsible for the remaining two.
Asian piracy in focus
The International Maritime Bureau’s third quarter report for 2013 noted the increasing prevalence of Southeast Asia-based attacks, with Indonesia accounting for the greatest number of incidents in the first nine months of the year (68 reported incidents). However, the IMB noted that these were “low level attacks aimed at theft against the vessel and should not be compared to the more serious violent attacks in the Gulf of Guinea and off Somalia”. John Reay, claims executive at Standard Club, says: “The club recently issued a web alert about a series of attacks in Southeast Asia, which is another area of concern. The London market’s joint war committee has set up a list of high-risk areas – which includes Indonesia, Malaysia, the Philippines and the Middle East – but at the moment [piracy] does seem to be more focused on Africa.”
Industry insiders are quick to point out that although the decline in East African piracy has happened in tandem with the increase in West African piracy, there is no direct correlation – it is not a case of the same pirates migrating.
Opinion is mixed over what could be the main drivers for the decline in Somalia-based attacks, although most agree the improved political situation on land, beefed-up security measures from shipowners and a greater international naval presence in the region have played a part.
“The largest reason for the drop off in attacks is that private security companies [employed by shipowners] have been so successful in what they do. There has not been a single vessel taken that has had armed guards on board,” says Simon Cassey, maritime security specialist at Chesterfield.
According to Lloyd’s Market Association head of underwriting Neil Smith, although armed guards are a factor, adherence to other facets of the Best Management Practices – such as having barbed wire along the outside of ships and maintaining speed levels through high-risk regions – has been just as important.
“It’s been suggested that Somali pirates were very organised, but the reality is they were out in the shipping lanes and took their opportunities as they presented themselves,” Smith says. “If you had a vessel that wasn’t operating to the BMP, [pirates] were far more likely to go for that because it was an easier target.”
Smith believes the biggest factor in the downturn in pirate attacks is “not a shipping answer” but the emergence of a more stable government in Somalia. He continues: “We can provide some mitigation by having some proper security in place or encouraging owners to use BMP, but the pirates will still be there if they don’t have an alternative path on land. For the early Somali pirates, the options for them were to go out and try their hand in the shipping lanes or probably starve to death. Their career options were very limited.
“What’s happened in Somalia on land in the last year or so has improved the situation there, and that’s a much greater reason why the numbers have gone down.”
However, some dispute this explanation, with Cassey questioning whether “a stable government exists in Somalia in any sense that we would understand”. “I don’t think the government has done much to prevent Somali pirates setting out to take ships,” he adds.
This scepticism is supported by the fact the number of successful hijacks has dropped off more steeply than the number of attempts – of the 140 boardings and 21 attempted boardings in 2013, there were only 10 successful hijacks – suggesting the improved situation is due more to improved shipowner defences than pirates simply losing interest.
While the crude generalisation is that Somali pirates are fisherman with weapons, the main perpetrators of West African piracy are organised criminal gangs operating in the Niger Delta. The sophistication of their approach and the booty they seek are very different to their east coast counterparts.
John Reay, claims executive at Standard Club, explains: “On the east coast it’s more of a transit type of piracy, whereas on the west coast it’s more of a destination type of piracy. There is more organisation on the west coast, as [the pirates] take into account the schedules of vessels waiting for loading.”
Somali pirates tend to hold the whole ship and crew hostage until a ransom is paid, but this is much rarer on the Gulf of Guinea, says Tyers marine director Paul Wood: “The main difference is that [Gulf of Guinea] attacks, while very violent, usually lead to cargo theft and maybe crew kidnap, rather than whole vessel seizure leading to a long-term detention.”
According to Aspen senior underwriter for kidnap & ransom Henry MacHale, West African pirates benefit from the fact Nigeria has a large black market for oil, meaning pirates know they will be able to dispose of stolen fuel quickly. “They can offload industrial quantities of oil in a few days,” he says.
The nature of West African piracy means the insurance needs of shipowners passing through the region are very different – something that MacHale says the insurance market has not always been alive to: “Most insurers just replicate their Indian Ocean piracy policy for the Gulf of Guinea, but it’s a very different risk.”
While insurance plays an important role in risk transfer, risk mitigation and risk management are equally important, and steps have been taken to address the situations in which ships become vulnerable to attack.
Reay says: “BMP 4 was more targeted towards Somali piracy, but interim guidelines published by a consortium including [such organisations as] the Baltic and International Maritime Council and the International Association of Classification Societies suggest further measures shipowners can take to reduce the risk of piracy in the Gulf of Guinea. These include making waiting times as short as possible, arranging to load during the daytime and making sure shipowners know and trust their agent.”
However, there is no substitute for the use of private security guards, widely accepted as a major factor in bringing down attacks in the Indian Ocean. While permitted in international waters, the use of such guards is forbidden by the Nigerian government, meaning shipowners desiring protection during their passage must instead appeal to the Nigerian government to use members of the country’s armed forces or police.
Against this backdrop, insurers have seen mixed success in trying to secure rate increases. In Willis’ Market Realities outlook report for 2014, the broker forecast that K&R rates would renew flat or with rate increases up to 20%. It noted that “underwriting of K&R exposures in impacted waters is still cautious” and that the “continued increase in the number of pirate attacks in the Gulf of Guinea has led insurers to rate exposures in these waters more punitively”.
However, according to Jonathan Moss, partner at law firm DWF, K&R underwriters are not immune to the challenging conditions in the marine insurance market as a whole. “There has been a dip in demand for international shipping and, consequently, a reduction in the number of risks to insure. This has created excess underwriting capacity, which has limited underwriters’ ability to increase rates. Reduced K&R insurance premiums are in some ways reflective of reduced marine rates generally.”
For cargo underwriters, the fact most cover operates on an annual global turnover basis is also challenging, says Smith. “In an ideal world, a cargo underwriter would be looking at the cargo, where it’s being traded and where it’s going to and from. In the good old days the underwriter could have charged an additional premium if a vessel was trading into an area with a greater exposure to that sort of loss. But these days most of this business is written on an annual global turnover basis, so you seldom have the ability to get very granular with the risk.”
With West African piracy proving increasingly challenging and risk emerging in Southeast Asian waters, is the downward trend in Indian Ocean piracy likely to continue? Wood says the outlook is uncertain: “There still seems to be quite a lot of current pirate activity, but without any successful attacks or seizures. There are reports that the naval presence in the Indian Ocean will be scaled down in 2014, which will not help the downward trend in seizures.”
Number and type of piracy attacks: 2008 to 2013:
Source: ICC IMB Piracy and Armed Robbery Against Ships - 2012 Annual Report
*Figures until September 2013
Despite the recent reduction in attacks, there has not been a discernable fall in the take-up of K&R or other piracy cover, but it is possible this could follow. The more immediate risk is that shipowners will start to question the cost-benefit ratio of risk mitigation measures.
Smith fears it is inevitable that a prolonged period of calm will lead to firms to reducing their security efforts, inviting further attacks. “All the things being done to support BMP have a cost attached to them. The longer it goes without there being an attack, human nature means people will start to relax,” he says.
“No one knows when that tipping point will be, but over the next 12 months people may say ‘we haven’t had any major attacks for more than a year, so we can stop doing this’. Then there will be a window, especially if things go pear-shaped in Somalia on land again, where we could see a rise in attacks.”
This article was published by Post Magazine on 7 January 2014 and is reporoduced with permission. Reproduction, retrieval, copying or transmission of this article is not permitted without the publisher's prior consent. For more information please visit http://www.postonline.co.uk/