Piracy and the effect on cargo owners
In the waters off Somalia and the Gulf of Aden, the frequency of pirate attacks has intensified over the last two years as Somalia remains without a central government.
International security efforts have increased, but their presence is having minimal impact on what is unquestionably a lucrative crime.
Somali pirates are making ransom demands of up to USD10million, threatening the crew and warning the shipowners that they will ground the ship if their demands are not met.
Understandably, the safety of the crew and the release of the vessel take priority. However, whilst the affected shipowner does what is necessary to secure the release of the crew and vessel, cargo owners can be significantly affected.
The cargo is often more valuable than the vessel itself, yet in the event of a hijacking, cargo owners may not be alerted to the situation and are unlikely to be involved in the subsequent negotiations and ransom payment.
Recent hijackings have lasted between seven and 100 days; 58 days is the average duration of a hijack in Somali waters. Cargo owners can see disastrous delays particularly affecting any seasonal or other time-critical cargo, and in the worst case, deterioration or material damage to the cargo itself.
We are also witnessing an increasing number of shipowners attempting (some successfully) to recoup a share of the paid ransom from cargo interests in General Average.
Given the cargo is more often of significantly greater value than the vessel it is being carried on, ship owners will seek to recover the significant majority of the ransom payment and any other general average charges from them.
Irrespective of the ultimate position, shipowners are likely to have a prima facie right to demand general average security and we would expect owners to exercise their lien over the cargo in order to obtain that security where they consider it necessary to do so. Unsurprisingly, we are also aware that cargo interests are attempting to resist the claim in General Average.
What action can Cargo Interests take to protect themselves?
It would appear critical to establish a protocol for communications with shipowners in the event of an incident.
In addition, we suggest cargo interest obtain confirmation from shipowners regarding adequate Hull and Machinery, P&I, and War Risks insurance for the voyage in question.
There is specialist Marine Kidnap and Ransom Insurance available which provides not only cover for the ransom payment but, arguably more importantly, access to specialist security consultants who will assist in negotiations for any ransom payment. We recommend that cargo interests check with the shipowners to see if they have purchased this cover.
We are also witnessing collaboration between the parties involved in the voyage (charterers, owners and cargo interests) to purchase this cover for all interests.
Please see our separate news article on Marine Kidnap and Ransom Insurance for details or contact us to discuss your requirements further.
To keep up to date with reported piracy incidents and to learn more about prone areas, please visit http://www.icc-ccs.org/prc/piracyreport.php
3 September 2012
Have recessionary risks hindered the opportunities available to Asian marine insurers? And is the future a profitable one?
20 July 2011
What has changed in the marine insurance markets over the last year? And can Assureds expect to see these soft markets continue?
6 December 2012
In recent months, three insurers have pulled out of the Hull and Machinery market as competitive pressures and a year of substantial claims take their toll.
28 November 2012
At the recent Meeting of the Association’s board of Directors, the general increase to be applied to the advance call rates for the 2013 policy year was set at 5%.
16 April 2013
INTTRA, the world’s largest multi-carrier shipping network for ocean freight, has launched a new member service that enables shippers to purchase cargo insurance from marine insurance specialist, FP Marine Risks.
4 February 2013
Hyperion Insurance Group Limited, the international insurance intermediary group, and FP Group Limited (FP), the Hong Kong-headquartered specialist marine broking group, are pleased to announce their partnership today, with Hyperion taking a 55% stake in FP Group Limited.
26 March 2009
26 November 2008