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Kenya: Reduced Risk of Pirate Attacks to Cut Freight Costs

Business Daily (Nairobi)

Githua Kihara

2 January 2012

Freight costs and insurance premiums are expected to drop later this year if the decreasing risk of pirate attacks in the Gulf of Aden is sustained.

The reduction in both people held captive for ransom and pirate attacks has been attributed to concerted effort by the international community to make the Indian Ocean safe.

“If the number of successful attacks remains low for the next six months, we expect the freight and cost of insurance to drop,” said Silvester Kututa, the chairman of the Kenya branch of the Institute of Chartered Shipbrokers.

Data from the International Maritime Organisation (IMO) shows that the number of ships and seafarers held captive by Somali pirates have dropped from a high of 33 and 733 in February to 13 and 265 respectively at the beginning of last month.

The number of reported attacks has also declined from a high of 45 per month in January to 14 in November. The proportion of successful attacks was cut from 20 per cent in January to seven per cent in November.

The peak season for attacks starts in November when the sea is calm. Shipping lines charge a piracy surcharge of between $350 and $500 (Sh29,050 and Sh41,500) per twenty foot equivalent unit ( Teus) depending on the region and the line.

Shippers buy four main insurance lines: indemnity, war risk, kidnap and ransom, cargo and hull.

The most significant increase in premiums has been in “war risk” , kidnap and ransom, according to a recent study on the economic cost of piracy carried out by One Earth Future Foundation.

The Gulf of Aden was classified as a war risk area by Lloyds Market Association’s (LMA) Joint War Committee in May 2008. The study estimated that total excess cost of insurance due to the Somali piracy menace are between $460 million and $3.2 billion per year. The cost of piracy also extends to prosecution of suspects.

Over 750 suspects have either been tried for piracy, or are awaiting trial in more than 11 countries.

The study estimates that the cost of piracy trials and imprisonment in 2010 was $ 31 million.Apart from naval patrols around the Internationally Recommended Transit Corridor (IRTC), the best management practices (BMP) by master and crew of ships recommended by the international community have contributed significantly to reducing attacks.

The BMP booklet recommends that vessels should have a free board above eight metres, have barbed wire along the exposed edges of the ship, and to navigate at faster speeds to enhance chances of escaping attacks.

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