Ship and cargo owners urged to safeguard against piracy
The two attempted piracy attacks along the Gulf of Aden that occurred recently, has once again highlighted the need for ship and cargo owners to safeguard both their assets and people through an effective risk management strategy.
The first in-depth global piracy report released by Aon Risk Solutions has confirmed an increase in overall piracy activity in the East African region. The report revealed a 17% year-on-year increase in attacks from 231 to 278 between 2009/10 and 2010/11. According to the report, cargo vessels are the most attacked type of vessel in this area. The most notable shift was in the Gulf of Aden, historically a piracy hotspot, to the Arabian Sea, which experienced a 267% increase in attacks.
Statistics released by the International Chamber of Commerce Commercial Crime Services substantiate these figures, revealing that the total number of piracy attacks worldwide totalled 326 this year with a total of 33 hijackings. Currently pirates in Somalia alone are holding 16 vessels with 301 hostages.
According to Jeffry Butt, Business Unit Head of Marine at Aon South Africa (Pty) Ltd, the report highlights the need for those operating in the marine industry to manage the risk of piracy by ensuring robust preparation and preventative measures are in place to reduce the 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 up to 3 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”. The average adjuster(s) will provide each cargo owner with an average guarantee / bond to be signed and returned. This confirms the commitment from each cargo owner that they accept responsibility to pay their proportionate share of the collective cost of the ransom being negotiated.”
He says there have been instances of General Average where the proportionate share each cargo owner had to pay was equal to 60% of the value of their cargo on board the affected vessel. “For example, if a particular cargo owner had cargo to the value of R 10 million rand on board the affected vessel, his contribution will be R 6 million.”
He says that in some ransom cases the average guarantee/bond that is submitted to each cargo owner for signature and return, is open-ended which does not stipulate the proportionate amount to be guaranteed. The cargo owner’s liability at the time of signing is therefore an unknown.
Butt says that for any small 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, average adjusters etc. “Although there are commodities that pose a environmental threat, especially in the case of bulk oil, piracy in general is not commodity-driven as the cargo on board often has a limited monetary value, however the ransom value can be almost limitless due to the lives that are taken hostage,” says Butt.
Butt adds that consequential losses and trade disruptions are also a huge risk factor. “Negotiations can sometimes take up to seven months to finalise, leaving companies without their cargo and no sales activity. This leaves business massively exposed to profit loss risks if they are not insured.”
However, he says there are solutions available in South Africa to reduce exposure to such risks. ”Some companies such as Aon South Africa (Pty) Ltd, 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.
Butt says it is essential for all ship and cargo owners to make sure that they have spoken to a specialist advisor who understands the full set of risks facing a marine business in order to provide a comprehensive risk assessment. “This will assist not only in identifying what type of cover is best-suited for the business but will also save the company from suffering significant potential losses in the event of falling victim to a piracy attack,” concludes Butt.
