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Price of piracy $12bn a year across oceans

Forget, just for a moment, the danger. Think about the cost of piracy on the high seas.

The insurance loading for ships going through the affected seas - the area off Somalia is designated a "war-risk" zone - can add as much as $US150,000 ($157,000) to normal marine policies. Studies have shown the cost of piracy may be costing the global economy as much as $US12 billion a year

It is increasingly a worldwide problem. Indonesian pirates are a growing menace, as are those who operate off western Africa, especially from Nigeria.

But it was the Somali activities that captured headlines around the world. And the apparent ease with which ships could be boarded, and held hostage, led to a rapid increase in the number of attacks. In 2009, 41 vessels were attacked, but just the next year the number rose to 122. These included a Saudi super tanker (with a full load) and a Ukrainian ship laden with tanks. At one stage, the pirates were holding 19 ships.

This year, however, Somali pirates are being eclipsed. The pressure group Oceans Beyond Piracy estimates the cost of Somali piracy fell 12.5 per cent last year to $US6.1bn. Vigorous action by various naval forces and the deployment of armed guards on merchant ships has helped.

As of August 31, only two ships had been hijacked off the Somali coast since the beginning of the year (although eight others had been attacked).

West Africa is catching up. According to the International Maritime Bureau, piracy in the Gulf of Guinea, including from Nigeria, cost the global economy as much as $US950 million. There were 58 reported attacks on ships in that area last year. In the case of West Africa, the pirates are extremely well organised. Reports indicate the pirates have a back-up network of lighters into which to unload desired cargoes, onshore warehouses and a string of contacts who sell the goods.

The gangs typically deploy three skiffs or speedboats, each carrying between seven and 15 armed men and equipped with grappling irons and ladders. While the heavily armed Nigerian gangs are making big money, their raids are a blow to countries that depend on safe shipping. The piracy has its economic cost for struggling nations like Togo, Ivory Coast and Benin. The whole region depends on secure shipping for the commodities that sustain their economics, including oil, cocoa and metals.

Worse, the industry is expecting insurance loadings to soar for vessels playing those waters.

Piracy is back in the news this week. In what seems to have been a brilliant sting, Belgian police lured a notorious Somali pirate, Mohammed Abdi Hassan, to Brussels with the promise of an advisory role in a film about his exploits. Then Indian authorities seized a ship owned by a US security firm which was operated by armed mercenaries as an anti-piracy force.

But, most of all, there has been the new movie starring Tom Hanks, Captain Phillips.

Richard Phillips was in April 2009 master of the US cargo vessel Maersk Alabama which was delivering relief supplies. The crew was able to fight off the pirates, but the Somalis managed to capture Phillips and hold him for five days at sea in Gulf of Aden until US Navy SEAL snipers killed the men holding Phillips and freeing the American.

But we have problems in our own neighbourhood, too. The pirates attacking vessels in Indonesian waters, however, are more interest in robbery than hijacking the ship itself. They want the money, mobiles, computers and any valuables owned by the crew members.

So far this year there have been 48 recorded incidents in waters around Indonesia and Malaysia.

Globally, the International Maritime Bureau says, 138 attacks have taken place this year.

Three main areas of marine insurance cover

Marine Cargo

Covers the risks of loss or damage to goods and merchandise while in transit by any method of transport - sea, rail, road or air - and while in storage anywhere in the world between the points of origin and final destination.

Importers, exporters and owners of goods in transit within Australia take out this sort of insurance. A marine cargo policy is usually an annual policy tailored to suit shippers' needs.

Marine Hull

Provides coverage for all types of vessels and their machinery while navigating anywhere in the world. Shipowners and shipbuilders take this cover.

Marine Liability

Solutions for companies with exposures in the marine and international shipping industry. This includes protection and indemnity, pollution, charter liability, port authorities, ship repairers and terminal operators.

These policies are taken by road carriers and logistics industries, shipowners and those chartering ships, ship repairers, marine and port operators.

Policies range from basic protection against loss of goods through to more comprehensive policies that protect against loss of sales and provide for goods to be shipped as replacements.

Marine insurance can also be taken out on a shipment-by-shipment basis.

While financial damage and liabilities may be covered by insurance, commercial damage is longer term and good business practice requires avoiding disruption wherever possible.

Reputable marine insurers place value on managing risks and exposures as a key to reducing future losses. Identifying risks early saves time and resources and protects the bottom line.


Article by The Australian, written by Robin Bromby
The views expressed in the article above should not be taken as the views of, attributable to, or as endorsed by Zurich unless otherwise stated. This material is general information only and should not be relied upon as legal advice. You should seek professional legal advice before acting on any of the material above.

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