icon bookmark-bicon bookmarkicon cameraicon checkicon chevron downicon chevron lefticon chevron righticon chevron upicon closeicon v-compressicon downloadicon editicon v-expandicon fbicon fileicon filtericon flag ruicon full chevron downicon full chevron lefticon full chevron righticon full chevron upicon gpicon insicon mailicon moveicon-musicicon mutedicon nomutedicon okicon v-pauseicon v-playicon searchicon shareicon sign inicon sign upicon stepbackicon stepforicon swipe downicon tagicon tagsicon tgicon trashicon twicon vkicon yticon wticon fm
9 Dec, 2008 15:50

Somali pirates just pawns in a global business

Pirates operating off the Somali coast are about to receive another US$3.5 million ransom for the release of the Ukrainian freighter Faina. That will bring their total haul to some US$40 million so far this year.

A few months ago, it cost US$ 230,000 a day to charter a mid-sized bulk carrier, but now one can be booked for as little as US$ 3,000 a day, with the fall in the Baltic Dry Index of shipping costs, surpassing the falls elsewhere. Some experts say increasing piracy in times of slowing business is no coincidence.

“The freight market has fallen by three quarters in volume terms,” says Alexei Bezborodov, an analyst at consultancy Infranews.

“In this situation, unprincipled ship owners look at the opportunities offered by some insurers or the Somali diaspora. If the vessel is hijacked, the ship owner gets money from the insurer. There are other payments, too. That's how the cash flow is being created.”
Somalia’s Ambassador to Russia, Mohamed Handule, says the pirates are just hired help. He has his own version of events.

“I am sceptical that pirates can seize a ship without assistance – to know its location and approach it,” Handule says. “If you can't prevent an approach of pirates, it means you're not able to stop your ship from being stranded on the rocks. Any vessel can technically detect any other vessel approaching.”

Ship security is a new and fast-growing business.  Insurance brokers are also benefiting. Now that insurance is fast becoming more popular, its rates are raising.

Top maritime insurer Lloyd's of London doubts the conspiracy theory.

“I'd be very surprised if that is the case,” says Neil Smith, Lloyd’s senior manager for underwriting. “The ship-owners that we're aware off say it's a concern for them, they have concerns primarily for the crews going through the area. It's a very troubling time, obviously, from an insurer’s point of view – we are there to support the ship owners and their activities.”

One option is a longer journey. Instead of travelling through the Suez Canal, ships could go around Africa, via the Cape of Good Hope. This would be more expensive. But the longer journeys would create the need for more vessels. Shipping experts say that could actually help their industry.

“There won't be enough ships to transfer goods,” says Mikhail Voitenko, editor-in-chief of Sovfrakht Maritime Bulletin. “That will help the freight rates, right now freight rates especially in some sectors like bulker shipping – they are disastrous.”

Industry insiders say all sides could be benefiting from the rise of piracy. Pirates get their ransom, ships get insurance payouts, and brokers take their commission.  The insurance underwriters pick up the bill – eventually passing it on, as higher premiums to the clients.