Drop in shipping premiums heralds cheaper import bill

Commercial shipping lines have lowered their premiums following suppressed piracy off the coast of Somalia, raising the hopes of consumers for cheaper commodities.

Most shipping lines have now reviewed their risk surcharges to between $400 (Sh33,600) and $500 (Sh42,000) down from the previous average of $600 (Sh50,400) when piracy attacks on routes around the Gulf of Aden threatened to cripple the industry.

“Things have stabilised and most ships are no longer slapping piracy related surcharges on freight costs,” said Gilbert Lagat, CEO of Kenya Shippers Council (KSC).

The hijackings had sharply pushed up freight costs as insurance companies charged higher premiums to match the heightened risk.

Freight costs also increased after some shipping lines opted for longer alternative routes round the Cape of Good Hope in South Africa.

Incidents of piracy have dipped substantially with most commercial ships hiring private security firms to escort the vessels besides the regular navy patrols.

Statistics by International Maritime Bureau (IMB) show that in the first half of this year there were only 69 incidents involving Somali pirates, compared with 163 in the corresponding period last year.

At the time, pirates operating in the busy shipping lines routes off the Gulf of Aden and the northwestern Indian Ocean netted $160 million in ransom fees, and cost the world economy some $7 billion in opportunity costs.

“The naval actions play an essential role in frustrating the pirates. There is no alternative to their continued presence,” said IMB director Pottengal Mukundan.

International navies have stepped up pre-emptive action against pirates, including strikes on their bases on the Somali coast while shipping firms are increasingly using armed private guards and other measures such as watchtowers and razor wire.

However, private companies have assumed a bigger role in the fight against Somali pirates as global navies reduced their counter-piracy deployments on Indian Ocean, a new report by Australia’s Lowy Institute for International Policy said.

READ: Somali piracy boom for private firms over cut in global defence

“Because governments have struggled to contain the spread of piracy in the Indian Ocean, shipping companies have turned to private military security companies to guarantee the safety of their crews and cargo,” said James Brown, a military fellow at the Institute.

It is projected that piracy would remain low despite the end of the monsoon season that is characterised with violent waves and winds, which discourage pirates.

Over 140 private companies now provide armed protection for ships in the Indian Ocean, the institute said, while at least 2,700 individual contractors are employed as armed guards on ships and 18 floating armouries are operating in waters near the Gulf of Aden.

An additional 40 private armed patrol boats are expected to join operations on the Indian Ocean route.

“Private armed teams have proliferated on commercial shipping and several private armed vessels are operating in the region,” Mr Brown, said.

Seafarers Union of Kenya Secretary (SUK) Andrew Mwangura estimates there are more than 200 private military security boats that are helping to fight piracy on the waters.

“With the presence of these private military boats, piracy is on the decline,” he said. Russia, France, China, the United Kingdom, US and Turkey are some of the countries whose navies are patrolling the ocean.
Mr Lagat, however, said there would only be a remarkable drop in the cost of doing business when all securities issues confronting the region are addressed.

The volume of cargo handled at the port of Mombasa has increased substantially in response to the calmer seas and improved economic outlook.

“Although issues of security are still thorny in our region, piracy has significantly subsided,” Kenya Ports Authority chairman Shukri Baramadi said.

The port registered significant throughput growth of 15.1 per cent to 10.7 million tonnes compared to 9.3 tonnes handled in the same period last year.

The volumes of containers handled between January and June also climbed 24 per cent to 458,110 Twenty-Foot Equivalent Units (TEUs) from 369,667 TEUs handled the previous year, statistics by KPA showed.

However, some traders said the cost of goods would not drop so soon.

“The inefficiency at the port remains a major issue to us. A lot of cost is added by inefficiency at the port,” Peter Kiare, a cargo dealer said.

According to Lowy Institute, the private security firms provide armed contractors and armed convoy escort vessels. Contractors are typically ex-Navy personnel with shipping industry - accredited safety and training qualifications, and work in teams of between 3 and 6 people.

The private maritime security teams offer counter-piracy services, including hardening of vessels in accordance with industry standards, crew counter-piracy training, and preparation of onboard “panic rooms” used during a pirate attack.

Individual contractors earn up to $500 (Sh42, 000) per day and companies can charge-out contractors for $1000 (Sh84,000) per day.

The private firms establish exclusion zones around the client ship and challenge suspicious boats that approach them, the Lowy Institute says.

Some of the private firms offer boarding teams on the escort vessels, with team members highly versed in waterborne warfare.

Private armed patrol boats are attractive to shipping companies because they do not require weapons to be carried on commercial ships, allowing them innocent passage through territorial waters.

Any consequences of firing weapons are also borne by the captain of the private armed patrol boat,” Mr Brown said.