Insurance costs to fall on a cut in piracy risk area

piracy

The insurance costs for ship operators are likely to fall following the recent decision of a global shipping body to reduce the size of the area identified as high risk area, or HRA, for Somalian piracy, industry officials said Wednesday.

“All other things being equal, a reduced HRA should first and foremost reduce insurance cost for the operators as most other protective measures are advised to be upheld,” Peter Sand, chief shipping analyst of the Baltic and International Maritime Council, or Bimco, said.

Last week, Bimco sent an advisory reducing the eastern limit of HRA from 78 degrees East to 65 degrees East and the southern limit from 10 degrees South to 5 degrees South.

Boundaries in the Red Sea and Gulf of Aden have been reduced to 15 degrees North and 22 deg north, respectively.

Bimco is the world’s largest international shipping association, with more than 2,200 members and frequently revises the best management practices for protection against piracy around Somalia.

Once insurance costs are reduced, the market conditions will determine on how fast the benefits are passed on to the customers, Sand said.

This will definitely reflect in the freight rates on voyages to the west coast of India, said a dry bulk ship-broker based in the country.

Technically, the additional premium in freight for ships calling at ports on India’s west coast should be done away with, said a dry bulk ship operator.

The oil tanker industry is less optimistic.

“This [reduction of HRA] is more of a theoretical exercise because there have been no major attacks on commercial shipping in the region for nearly three years, resulting in a natural adjustment in freight rates, said an oil tankers broker in Singapore. Scourge of piracy in the region reached its peak around 2011 when ships traversing the HRA had to incur heavy expenses in deploying armed guards on-board even as naval forces plied international waters.

“I doubt whether you will be able to single out the effect of the reduced HRA in the freight rates for any of the affected routes,” Sand said.

Other variables in the market are more significant, he said.

Even though BIMCO reduced the size of the HRA but also pointed out that these groups retain the ability to attack historical limits of their activity. “Any lowering of guard in the region is likely to present an opportunity for a resurgence of pirate activities,” Bimco said.

Therefore, along with the commitment to its own security responsibilities, the shipping industry remains fully supportive of continued military deployment on a counter-piracy mandate for as long as the threat of pirate action groups exists, it added.

Source: Platts

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