BGN Risk on Maritime Security and the modern day threat posed by pirates

Date Published: 20th November 2008

BGN Risk, as featured in the Financial Times, LA Times, MSNBC & Bloomberg, report a dramatic rise in piracy set to cost businesses millions.

• Added insurance costs to businesses worldwide estimated at USD 400 million
• Businesses are failing to properly protect themselves against the very real risk of piracy

An unprecedented rise in piracy off the coast of East Africa has left businesses around the world exposed to risk and facing higher-than-ever insurance and transport bills of up to USD 400m, according to corporate security risk experts BGN Risk, a division of Begbies Traynor Group.

Prior to this week’s Sirius Star hijacking, the largest tanker ever to be hijacked, more than 60 piracy incidents plagued vessels traversing the Gulf of Aden, off Somalia, so far this year, posing a serious threat to trade along this critical route between Europe and Asia. Only five such incidents were reported in 2004.

Due to increased danger, the special risks insurance levy for crossing the world’s most dangerous piracy hotspot has skyrocketed to an average of USD 20,000 per vessel per voyage, up from only about USD 500 last year. Should every ship using the route carry proper insurance, the added cost potential to business would total more than USD 400m annually, not accounting for ransom monies (more than USD 30m so far this year). As of 30th September 2008, 12 vessels remained captive and under negotiation with more than 250 crew held hostage.

“This dramatic rise in piracy impacts the entire global supply chain by interrupting deliveries and escalating costs,” said Liam Morrissey, partner, BGN Risk.

“Unfortunately, more than 90 per cent of shipping companies, already squeezed by high fuel costs and stiff competition, fail to take out adequate special risks insurance cover, and thus leave their vessels, crew and cargo exposed in the very real event of an attack or hijacking attempt.”

Almost a third of the world’s piracy occurs in the Gulf of Aden, a 550-mile long channel difficult to safeguard. The alternative option of travelling the long way around Africa in safer waters adds a minimum of 20 days transit time, bringing associated increased costs in fuel, payroll, and lost delivery time.

“Either way, businesses ultimately pay the price of piracy,” says Liam.

“Companies wishing to safeguard their cargo should ensure they have the appropriate additional insurance cover. To protect themselves, vessels should plan their routes carefully, consider employing private security personnel if necessary, liaise with the International Maritime Bureau’s piracy reporting centre and carry out regular risk assessments.”

He notes that pirate gangs have become increasingly violent, as evidenced by this week’s hijacking of the Saudi-owned Sirius Star, in which pirates took 25 hostages including two Britons, and in and last week’s engagement between Royal Marines from HMS Cumberland and pirates, which left three pirates dead. Both incidents occurred in East African waters. He cautions against being lulled into a false sense of security by bolstered naval presence in the Gulf of Aden: “ Five warships can’t guarantee complete safety. Logistics in the area are difficult, and the ongoing regional instability creates challenges for private security firms. Although sophisticated, cost-effective precautionary measures do exist, both the public and private sectors are still working towards a commercially viable solution.”

BGN Risk identifies, manages and reduces security risk in commercial environments around the world – to protect employees, assets and goodwill. Based in London but with field offices in East and West Africa, their anti-piracy operations include deploying security escort teams on vessels; advising crew on mitigating the risk of pirate attack; hijacking response training; and hijack and ransom negotiations.

Contact Liam Morrissey direct for further information.

About the author

Julie Palmer

Regional Managing Partner

Meet our Team of Experts

Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.

Julie is a member of the Insolvency Practitioners Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.

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