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Sat 6 Dec 2008 04:00 AM

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Peril of the seas

Regional piracy continues to pose a massive danger to the maritime sector.

Regional piracy continues to pose a massive danger to the maritime sector.

The threat of piracy to international shipping has reared its head again, and attacks on oil and gas related vessels, as well as cargo ships, have been stepped up in recent years, and even months.

The Malaysian and Singaporean shipping channels that pass through the Malacca Straits were once the most hazardous waters in the world, but international focus has shifted much closer to home for Middle Eastern readers.

The pirates are targeting vessels with a low freeboard, and vessels where the owners will pay the ransom. It’s no overstatement to say the threat is very real in the Gulf of Aden. - Simon Stonehouse.

The Gulf of Aden, just off the Yemen coast, has become the number one international hotspot for piracy as attackers from the largely lawless and ungoverned Puntland region of Somalia have increased both the ferocity and frequency of their attacks.

Just a couple of months ago, a fully laden VLCC was approached by gunmen as it passed through International shipping lanes between Yemeni and Somali waters on its way to the Suez Canal. Fortunately, the attackers were deterred by the evasive manoeuvres undertaken by the ship's captain, and yet another crisis was averted.

And as the Sirius Star episode has shown, such incidents reflect not just the growing confidence of the pirates plying the Gulf waters, but also the vulnerability of the oil and gas sector's crucial sea trade.

For mariners in charge of the vessels that carry the world's energy supplies, modern piracy is a very real threat, and one that is fast becoming an expensive obstacle to the viability of Suez-bound trade - the vital link connecting Middle Eastern cargo with customers in both Europe and the US.

The pirates that are attacking today's shipping are typically armed gangs who either sneak aboard vessels or threaten to fire upon them unless allowed to board. The standard practice in the waters off Somalia is to secure the vessel and take the crew, cargo and hull hostage in the littoral waters where local sympathisers can offer protection.

They have only one goal in mind, and that's the ransom. If a ransom is refused or cannot be agreed, the risk to the crew, the cargo and the vessel itself is greatly increased, even in the event of a special forces raid.

If gunmen become desperate or fearful of a raid, there is little to stop them destroying the vessel and trying to make good their escape.

"In the most recent spate of attacks, since 16th May, ships have been detained in these waters," explains Paul Agate, head of marine insurance at London-based Lloyds broker Swinglehurst.

"This makes plying trade anywhere near the Somali routes a genuinely scary prospect for owners. And it's not just small cargo ships anymore. Chemical tankers are starting to be detained."

Simon Stonehouse, marine hull underwriter for Brit Insurance, agrees the threat is significant and the oil and gas industry is vulnerable. "The pirates are targeting vessels with a low freeboard, and vessels where the owners will pay the ransom. High value oil and gas assets such as offshore support or seismic vessels fit the profile, and it's no overstatement to say the threat is very real in the Gulf of Aden."

In the vast majority of cases that have arisen in the current spate of attacks, the ransom is paid. Some of the payments have been in the region of US$3 million, so the sums involved are considerable, not to mention the loss of earnings for the vessel operator and the depreciation of cargo values for all parties with an interest on board.

The alternative to passing through the Gulf is a voyage around the Cape of Good Hope at the southern tip of Africa. The extra distance adds greatly to fuel costs, and would typically take a large cargo or tanker vessel an extra 20 days to reach its final European destination.

"The ransom is effectively paid in an attempt to ensure the safety of the crew and to mitigate exposure. In crude terms it makes better financial sense to pay the ransom rather than lose a $50 million vessel," explains Stonehouse.

Serious figures start to come into play when a VLCC such as the Sirius Star is factored into this equation. A newbuild 550,000 dwt tanker can cost over $120 million. The cargo on board could be anything up to 2.2 million barrels of oil. At an assumed cost of $100 a barrel, the astronomical exposure - limited to hull and cargo - rolls in at $340 million.

"The basic costs only paint part of the picture though," says Stonehouse. "The principal concern with oil tankers is that pirates may board, try to take control and get it wrong. If a tanker runs aground then we're talking about a major casualty which would cause massive pollution. That's my biggest fear."

The danger to shipping extends to the crew, and unions representing mariners have been extremely vocal in the interests of their members. Many of the world's ratings on board cargo and product carriers are sourced from the Philippines.Government figures say the Philippines is the world's largest supplier of seafarers, accounting for a third of the world supply. At any given time, it is estimated that 250,000 Filipino seafarers are at out at sea.

At the time of going to press, 82 Filipinos were in the hands of Somali pirates from several hijackings since July. The Filipino government has since declared the Gulf of Aden off Somalia a hazard zone, in a pre-emptive measure for Filipino sailors who have become vulnerable to pirate attacks in the area. It is now mandatory for owners to increase the wages of Filipino mariners with a hazardous work supplement, thought to be in the region of double-pay.

There are precautions owners and operators can take to protect their crews and vessels. One company, Hart Security, has been working closely with the maritime community for several years and is considered at the forefront of vessel and port security. Hart offers solutions to operators shipping in hazardous waters, and puts a team on board vessels to help in the worst case scenario. Euan Air is the general manager of supply chain security offered in Hart's Dubai office.

There is no doubt this regional piracy is having a huge influence on world shipping. Just look at the headlines and attention it has garnered worldwide. - Euan Air.

"There is no doubt this regional piracy is having a huge influence on world shipping. You've just got to look at the headlines and attention it has garnered worldwide, from what is essentially a very simple act - which piracy is - to see that it is having an impact," says Air.

"One international shipper I've spoken with had five vessels attacked in the last four months, and on the last occasion, the vessel was attacked as it manoeuvred away from the pirate vessel. It's a fairly worrying development that the vessel was fired upon with a heavy machine gun and rocket propelled grenade launchers when it was clearly escaping. This seems to be a new level of vindictiveness we are seeing."

Hart Security has joined forces with Swinglehurst in a move that Air says will benefit owners through a security and insurance combined offer. Swinglehurst now offers ship owners, either directly or via their brokers, war risk cover including the risks of piracy, for voyages within the Gulf of Aden where vessels are protected by Hart personnel.

The comfort afforded by the involvement of Hart should enable some extremely attractive insurance rates to be offered.

"Hart's maritime department has extensive experience from both the military and commercial sectors in providing waterborne security.  Our product provides consultancy services, personnel and vessels for oilfield waterborne security support, as well as detection and/or deterrence and finally anti-piracy support services," explains Air.

Although there is a capacity for security experts on board to be armed, Air says that this is an absolute last resort, and not something the company actively pursues from its clients.

"We have six stages of deterrence before we would advocate lethal force. Deterrents can range from anything like barbed wire or electrified fencing around the vessel, which makes boarding more difficult, to bright lights, and actual defensive measures. Also we educate the captain as to what measures to take."

Manoeuvring the ship in a certain way is another method. Shifting a large vessel correctly can create a large wash or wake that makes approach by a much smaller vessel a lot more difficult. "Such defensive measures are actually quite effective. By making it very difficult for the pirate to board, many times this action alone will deter them."

To date Hart has undertaken 104 protection escorts, with seven attempts to board, and all were deterred.

"We think the idea will give a lot of risk comfort to both underwriters and owners," says Agate. "Given that the dangers are increasing, so too are insurance costs. We're confident that with the Hart team onboard we can offer a combined insurance and protection product that will actually reduce an owner's premiums."

Agate then explains that due to piracy, demand is increasing for insurance. "We are now receiving a huge amount of enquiries, and the tie-up has been launched at a time when there really is market demand. The piracy problem is here and now, and compared the costs of sending a vessel around Africa, this offers a win-win situation for everybody involved," he indicates.

The piracy issue may be solved by a coalition of international navies and coast guard authorities, but the oil and gas offshore and transportation industry should do all in its power to prevent more incidents occurring.

Increased security is a fact of the world we live in, and when highly politically charged commodities like oil and gas are involved, no short cuts should be taken. The firms that shirk responsibility will be vilified and blamed for their shortcomings if the worst does happen.

The blame will not fall on the pirates, rather any corporate brand involved. Today's security needs are greater, and the industry's response must be too.

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