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Piracy at sea and the commerce behind it (Part 1)

The long term solution to piracy lies in the world reverting to ships flying with the flag of their own nationality, not flags of convenience 

Veeresh Malik

Maritime piracy has resumed in full force after a lull. And it mainly affects the Indian seafarer in captivity. One reason for this is the standoff between Indian government and pirates on the issue of some Somalians in Indian custody. The Somalians demand that their colleagues be released, while the law in India will take its own course. This has left Indian seafarers to rot in terrible conditions. The Kenyan invasion of South Somalia, ignored in the Indian media despite the ancient ties with the Horn of Africa, has just increased the risks. The Indian seafarers are likely to, once again, become pawns in the conflict.

From torture and beatings to starvation, as well as being denied access to any form of interaction with the authorities, Indian seafarers are in a miserable condition. They will risk their lives due to economic compulsions, and more, on voyages in waters, where Indians have traditionally sailed. Whether by conventional “dhows”, or on modern ocean liners, they are the new targets, and the pirates roam from the Horn of Africa to the furthest reaches of the Southern Indian Ocean. With attacks from submarines and drones now making no difference between friend and foe, stuck on ships, retaliation is expected. Western forces seek a higher involvement of the Indian Navy.
Matters have reached a point where the demanded ransom “rates” for Indians in Somalian captivity is the same demanded from Europeans. In some cases, release is denied outright. In addition, the previous rule of “no bloodshed” is now being openly flouted, as is evident from the killing of two European tourists and kidnapping of others from the Swahili resorts in Northern Kenya near Somalia. Near death-type of torture is also being reported.
The Indian crew left behind from the ASPHALT VENTURE have still not returned, despite ransom being paid. In the case of another European owned ship with Indian seafarers onboard, the ransom amount, after almost being settled, has gone up to three times what it was a few weeks ago. This is because the insurance company of the owner refuses to come to the table anymore – having lost interest in the ship and cargo. The attack on what is called “Jubaland”, at the Southern end of Somalia, by multi-national forces, is one reason.
In the midst of all this, the Indian government and private ship-management agencies have clamped down on all information. Even the families of those affected are kept in the dark. A possible reason for this could be that the real ship-owner, who is often hidden behind the forwarding address of a tax-haven seldom comes forward to help. This is because his K&R (Kidnap and Ransom) Insurance and other covers are adequate to pay for the vessel and cargo. Therefore, losing the asset is certainly profitable for the actual ship owner in a recessionary market. Consequently, the whole of the Indian Ocean has been declared a War Zone.
Brutally explained, companies find it more profitable to collect insurance on a hijacked ship. Humans on board are often seen as cheap collateral damage from the third world countries. The ship owner, or the charterer, frankly stands to gain if the hijacked ship just sinks quietly with all people on board. Therefore, only media coverage and bad publicity are a worry; hence families are asked to keep quiet by threatening to deny them their dues. They even keep the regulatory authorities, in this case the Directorate General of Shipping, quiet or as make them an accomplice.
This is why, at a workshop on piracy in the Indian Ocean, one had the amazing experience of seeing on stage a combination of NATO, British Royal Navy, EU Forces representative, Ship owners and an International Union Representative. With the Indian Government and the Indian Navy in the audience, the point that our friends from the countries, which control international shipping legislation globally were making, sounded like this:
1) The older pirates, of Captain Blackbeard and Johnny Depp variety, were romantic creatures. Switch to slide of good-looking lady-killer type smiling white guy from Pirates of the Caribbean with sword.

2) The modern-day Indian Ocean pirates, of African variety, are terrible terrorist creatures. Switch to slide of scarred big black guy, with huge teeth grimacing, while wearing Islamic head-dress with AK-47.

3) The true pirates, wearing fine bespoke suits in global banking centres, were simply business executives. This person did not get a slide, and chose to be hidden behind global free trade anonymity armed with impeccable Queen’s English.
Leading from this, we were told that it is very important for Indians to persuade the Indian Navy to provide more security to all vessels in the area, while keeping the European Navy free. This led to surprised grins from some Indians present at the workshop for following reasons:
1) If the Indian Navy did not step out and guard the Indian Ocean, then supermarket shelves in Europe would not be able to carry the same discounted prices (as generations of people who did not really work hard for a living had got used to).

2) The European powers are busy with Libya, and maybe Syria, Iran or others would need their ships for those theatrics, or maybe even an un-announced invasion of Somalia by the Kenyans.

3) Most of all, it costs a lot of money to keep the European and NATO naval ships working in the Indian Ocean even when the dirty work below the deck was done by cheap labour from third world countries.

(Note – it is not only “flag of convenience” merchant ships that employ cheap seafarers to work in subhuman conditions. This practice is now followed by warships from developed countries also.)

Source: http://maritimesecurity.asia/free-2/piracy-2/piracy-at-sea-and-the-commerce-behind-it-–part-1/

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Modern piracy: bloodless no more

Rose George writes about the escalation of pirate violence in the Indian Ocean and the possible consequences of the UK’s decision to allow armed private guards on board British-flagged ships.

Read more at http://m.guardian.co.uk/commentisfree/2011/oct/30/piracy-no-longer-bloodless?cat=commentisfree&type=article,

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ARABIAN SEA | Piracy threatens regional economy

Piracy is threatening the UAE’s coastal economy as attacks are being staged following a brazen and successful ship hijacking outside Salalah Port in Oman.

The Fairchem Bogey, managed by Anglo-Eastern Ship Management, based in Mumbai, was seized on Saturday as it was awaiting berthing instructions. All 21 Indian sailors on board were taken hostage.

Tim Stear, the global head of maritime security for control risks based in Dubai, said attacks off the coast of Oman could endanger the gulf maritime industry, which includes cruise ships, superyachts and marine transportation.

“A year ago there was a view that you could sail into the Arabian Gulf without having to encounter problems if you were coming from the Maldives, for example,” he said. “But it has all brought it home now that this is not an ‘off the coast of Somalia’ problem. This is also an Arabian Sea problem.”

The attack on a ship so close to the Omani coast and in the Sultanate’s coastal waters is one of the most audacious raids on a maritime vessel and a sign that hijackers are becoming more daring, even as intergovernmental task forces have deployed navies to protect the vital shipping corridor off the Somali coast.

“Whether it is off the coast of Oman or somewhere else, we are appalled at this terrible situation,” said Keith Nuttall, the group commercial manager of Gulftainer, the Sharjah ports operator, who noted that there were currently hundreds of seafarers in Somalia on captured ships. “I know it is a complex issue, and that many navies of the world are working on combating this, but it is still a depressing state of affairs.”

The scourge of piracy has huge potential to disrupt the region’s maritime industry. The Gulf is a crucial body of water for the transportation of the region’s oil wealth, with nearly 40 per cent of the world’s traded oil supply passing through the Strait of Hormuz.

In addition, the region has a growing cruise line industry and has stated its ambitions to be a global destination for sailing competitions. Ras Al Khaimah narrowly missed out on becoming the location for the America’s Cup race last year because of a legal dispute between the two competitors, but it was piracy that was behind the decision last week to abandon plans for the Volvo Ocean Race to sail directly to the Gulf from South Africa.

Boats will sail from Cape Town to an undisclosed port before being transported closer to the finish in Abu Dhabi. In the next stage of the global race, the boats will sail from Abu Dhabi over the New Year and will then be transported to another undisclosed location before continuing on to the stage finish in China.

“We have consulted leading naval and commercial intelligence experts and their advice could not have been clearer: ‘Do not risk it’,” said Knut Frostad, the chief executive of the Volvo Ocean Race.

Veesham Shipping, based in Dubai, which owns oil tankers and ships that transports cars and trucks, has fallen victim to several hijackings over the years, including an attack from Somali pirates as well as a more recent incident off the coast of Nigeria. Much of its work focuses on Africa, including carrying humanitarian goods to the more secure southern area of Somalia. The attacks and the persistent threat of more incidents has caused a great deal of personal anguish for Ajay Kumar Bhatia, the owner of Veesham. “We always sleep in fear when we put vessels in that area,” he said.

The financial implications are just as worrying. Insurance companies often require companies such as Veesham to hire security guards on board. A journey to Africa could cost more than US$80,000 (Dh293,836) in insurance and security costs alone, Mr Bhatia said.

Source: http://www.thenational.ae/thenationalconversation/industry-insights/economics/piracy-threatens-coastal-economy

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PIRACY | Germany wants armed guards on Europe ships: official

LONDON (Reuters) – Germany plans to lobby other European Union countries to allow the deployment of private armed guards on their merchant ships in high-risk areas as a piracy crisis escalates, ministry officials said.

But analysts said the initiative was likely to face legal and practical difficulties.

Somali piracy is costing the world economy billions of dollars a year, and international navies are stretched to combat the menace in the Indian Ocean due to the vast distances involved. In desperation, more shipping companies are considering deploying private armed guards on their vessels.

The German government is looking into changing the country’s weapons laws to allow security personnel to bear firearms on ships in high-risk areas. It could also certify those private security companies that could be used on merchant vessels, a government official said.

“Our goal is to develop a coordinated approach to be presented at the International Maritime Organization (IMO) meeting in September, and EU governments are the main partners to bring on board,” said Jan Gerd Becker-Schwering with the German economy ministry. “To go this alone would not be beneficial.”

The European Union said allowing private armed guards on merchant vessels was a decision to be made on a national level, adding that ships should have best management practices (BMP) in place, including measures to prevent pirates from getting on board and to protect crew members.

“The implementation and execution of these BMPs, however, is the responsibility of the ship owners,” an EU spokesman said. “These private security contractors operate under the law of the flag state.”

Separately the IMO said such a move was up to national governments but warned of a potential escalation in violence.

“IMO does not endorse the use of privately contracted armed security personnel on board ships … and operators should take into account the possible escalation of violence,” the U.N.’s maritime agency said.


J. Peter Pham, with the Atlantic Council think tank, said the German plan could encounter legal setbacks, both domestically and abroad.

“Despite the apparent reasonableness of the German proposal, it will face several hurdles,” Pham said. “It needs to pass both houses of the German parliament, where there will be opposition from the left, which tends to look askance on mercenaries.”

Pham said it could prove difficult to convince foreign port authorities to allow armed groups into harbours.

“Even if Chancellor (Angela) Merkel’s government gets the necessary laws enacted, it will be an uphill battle to convince the authorities in ports to allow the security teams in, much less to get other countries, especially in Europe, to follow.”

International Chamber of Shipping Secretary General Peter Hinchliffe said the German plan was helpful in setting a precedent for approving armed guards in flags where they were not currently allowed.

“But it must not create a mechanism for governments to abrogate their responsibility under UNCLOS to protect trade routes,” he said, referring to an international convention that tasks nation states with tackling piracy on the high seas.

German ship owners’ association VDR said private armed guards were a “second-best solution” to deploying police or military forces. The German government has ruled this out.

“Using sovereign forces would not pose financial and capacity problems, and we could only use them on ships that sail under the German flag,” Becker-Schwering said.

Ships are often registered under other flags than that of the ship’s owner in order to avoid taxes and regulations of the owner’s country.

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ARTICLES | Iran, sanctions, and a disaster waiting to happen

Luke Hunt | The Diplomat, 2011.08.22

International sanctions against Iran’s national shipping line in response to Tehran’s nuclear ambitions are intensifying. The world’s largest container carrier, Maersk, has suspended operations at three Iranian ports, while the US Treasury Department has launched legal action against 121 companies and individuals affiliated with the Islamic Republic of Iran Shipping (IRISL).

The latest round of measures, aimed at Iran’s ballistic missile and nuclear programmes, came after IRISL was ostracized by the international maritime community with mortgage foreclosures on its ships and saw access to insurance greatly limited, prompting speculation IRISL is facing its own death knell.

However, as IRISL limps on, a new and potentially deadly risk has emerged – particularly in East Asia, where the monitoring of IRISL’s fleet has improved dramatically, but surveillance still remains patchy.

‘Any Iranian ship in Asian waters should send alarm bells ringing as Iran tries by all means to escape sanctions imposed for its involvement in nuclear weapons proliferation,’ says Carl Thayer, Emeritus Professor with the University of New South Wales. ‘The effect of the sanctions led IRISL to put unsafe ships to sea, where they pose a potential environmental hazard. Who will foot the bill if an IRISL ship is involved in an accident and spills its fuel? Asia states that allow IRISL ships into their ports should have second thoughts.’

Doing business with Iran and IRISL has become increasingly difficult in recent years with United Nations, European and US sanctions making even the most awkward operator cautious about trading with the country.

Tehran insists the sanctions are unjust and that its nuclear programme is purely for peaceful purposes; IRISL has echoed those sentiments and says its operations remain profitable and sound.

‘We don’t want nuclear arms, nor are we seeking to possess them,’ Iranian President Mahmoud Ahmadinejad said Tuesday. ‘These weapons are directed against people. We oppose them because of our religious beliefs – our religion says that they are prohibited. We are religious.’

While maintaining this stance, IRISL has also been accused of attempting to evade sanctions through a complex network of front companies to take advantage of loopholes in maritime security. But maritime law now poses a problem for IRISL and the waters that its ships ply.

Under the International Convention on Civil Liability for Bunker Oil Pollution Damage (2001), ship owners are required to hold insurance or other financial security to cover the liability for pollution damage in an amount equal to the limits of liability. This limit is usually up to $1 billion.

A well-documented cat and mouse game has therefore been played out as IRISL tries to buy adequate insurance for its operations. Of one specific class of insurance – protection and Indemnity, or P&I – the potential consequences could be felt well beyond the United States, Europe and Iran.

When goods are shipped around the world, the owners of the goods and vessels usually take out marine insurance. This cover, however, doesn’t generally extend to third party liability in the event of an accident.

‘P&I cover is third party liability insurance, which provides compensation to third party victims of maritime incidents,’ says Andrew Bardot, Secretary-General of the International Group of P&I Insurers.

It is essential to reassure port authorities that should a vessel run aground, collide with another ship, or become involved in an oil spill or other serious incident, that insurance cover is in place to pay for damage to ships, ports or the environment.

The enormous costs associated with the Deep Horizon spill in the Gulf of Mexico of between $2 billion and $5 billion, or the still evolving Fukushima disaster in Japan, have driven home the potential cost of nightmarish accidents. The Exxon Valdez showed litigation and reparations could take decades to resolve.

IRISL’s P&I cover was withdrawn by Lloyds of London in 2009 following UK sanctions against the shipping line. IRISL then found cover from a P&I provider operating out of Bermuda. In 2010, Bermuda passed legislation, bringing the country in line with the UK.

‘EU regulations have resulted in cover being terminated or not renewed for a number of designated Iranian shipping companies including IRISL and the NITC (National Iranian Tanker Company),’ Bardot says.

IRISL then approached the Islamic P&I club, which refused to provide cover.

Finally, IRISL secured P&I cover from Moallem, an Iranian insurer with no record of providing this type of insurance. NITC was faced with a similar issue with regards to P&I cover and has publicly stated it is using an ‘Asian P&I provider’ with cover that’s reliable, but more expensive than that secured through London. However, the lack of transparency on the identity of the provider does nothing to reassure on the reliability of the cover. Either way, on December 21, the US Treasury sanctioned Moallem.

All P&I providers re-insure against catastrophic losses, which kicks in for large exposures, but it isn’t clear who Moallem uses for re-insurance. Major European insurance houses wouldn’t be in a legal position to offer cover, leaving the Peoples Insurance Company of China (PICC) being touted as a possibility.

But analysts say that given its ongoing negotiations over access to Lloyds of London, it was highly unlikely that PICC would risk its international standing by being associated with a controversial and sanctioned client like IRISL.

Within maritime circles, the presumption is the Iranian government is the reinsurer of Moallem. But analysts say that given the doubts over Moallem and the severe restrictions on the Iranian government, banks and other institutions, the key question is how IRISL and Tehran would react to a shipping and environmental calamity, and what options would be open for redress and compensation.

It’s an issue that Greenpeace says must be addressed by the 10-nation Association of South East Asian Nations (ASEAN) given the threats to livelihoods and food security – and it says that any legal loopholes should be closed, while uninsured ships should be barred from entering regional ports.

Keith Loveard, a regional security analyst with Jakarta-based Concord Consulting, says an Iranian shipping disaster off the coast of Indonesia would likely cause a rift within government, as was seen with the leak from a Thai rig off the northern Australian coast last year.

‘The government would be caught between different currents, with the Foreign Ministry attempting to maintain smooth relations, while the Environment Ministry would be hopping mad and local communities would be left to deal with the mess,’ he says. ‘This is all very hypothetical. But the longer rogue ships operate without any insurance cover, the likelihood of something going wrong obviously increases.’

Others suggest one means of recovering costs incurred in dealing with an environmental incident would be to sequester any Iranian state-owned property or assets within the affected country, such as aircraft operated by state-owned Iran Air.

Gavin Greenwood, a risk analyst with Hong Kong-based Allan & Associates, says the recent seizure of a Thai aircraft used by the country’s crown prince in Germany to try and resolve a long standing dispute over money was one example over how this could work.

‘The International Court of Justice could also be involved, though this is a long term proposition,’ he says, adding that ‘Iran used the ICJ to claim restitution from the US after a US Navy warship shot down an Iran Air Airbus in July 1988.’

Mohan Malik, Professor of Asian Security at the Asian-Pacific Center for Security Studies in Honolulu, says the location of an accident involving the Iranian shipping line would also be important.

‘If it happens in the busy Malacca Straits or in the South China Sea, most littoral and major powers will be forced to contribute to the clean-up in order to facilitate an uninterrupted flow of energy and goods,’ he says.

‘Of course, there will be law suits against the Iranian government too, but the Islamic clerics can be expected to invoke Allah’s wrath on those who do so. Also, the International Maritime Organization (IMO) and other UN agencies would be called upon to play a greater role in ensuring that uninsured shipping lines aren’t allowed to operate in international waters.’

The IMO declined to comment on IRISL. However, sources close to the organisation say it has been undertaking amendments to its strategic direction in regards to liability and compensation claims in the wake of the Deep Horizon disaster.

Most maritime authorities demand a Blue Card from the P&I insurer as evidence that sufficient insurance is in place to meet liability requirements under the Bunker convention. But in Asia it’s not clear how routinely this is enforced or checked. If a maritime agency had doubts about the owners or operators ability to meet a liability it is able to deny a vessel entry or exit from ports or waters under its control.

Thayer says that lack of clarity in Asia demonstrates ‘yet again’ the weakness of the region’s security architecture and the reluctance of many Asian states to support sanctions.

‘By allowing the IRISL to continue in the face of sanctions, they are undermining not only good order at sea but inviting a disaster for which they will have to assume responsibility,’ Thayer says. ‘Banning IRISL ships from Asian ports would be a good first step in supporting the non-proliferation regime and protecting the marine environment against an accidental fuel spill.’

While the United States, EU and UK have taken the lead against Iran in regards to its declared and undeclared nuclear weapons ambitions, the real world impact of those sanctions are now being seen well beyond the Iranian interests that have been targeted.

IRISL continues to operate in Asian waters, with untested and unproven insurance. The responsibility for ensuring Asia doesn’t become a victim of events in Iran now rests squarely on the shoulders of Asian governments and their maritime authorities.

Source: http://the-diplomat.com/2011/08/22/maritime-disaster-waiting-to-happen/

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SAFETY AND SECURITY | Unsafe Ships More Subject To Piracy

From the Maritime Accident Casebook, 2011.06.25:

Ships that score higher numbers of deficiencies for each port state control inspection are less likely to be able to fight off pirates suggests the latest edition of Intercargo’s Benchmarking Bulk Carriers 2010-11. The findings from the fifth annual statistical survey are not surprising: issues such as lack of situational awareness,  inadequate lookouts, lack of use of available information, under-manning  and not following procedures are as much a characteristic of pirate hijackings as they are of maritime accidents.

I think the full article is worth reading: http://maritimeaccident.org/2011/06/unsafe-ships-more-subject-to-piracy/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MaritimeAccidentCasebook+%28Maritime+Accident+Casebook%29

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SHIPPING | ‘Out of control’ piracy set to cost world £9bn by 2015

Crime at sea is ever more lucrative: in East African waters, pirates pocket 150 times the national wage

By Jonathan Owen

Somali pirates are earning more than 150 times their country’s national average wage in what has become a multimillion-dollar business, a new study reveals. 

Experts believe that pirates in the East African country – the most dangerous point in a rising tide of piracy at sea – earn up to $79,000 a year. It is a stark contrast to the average annual income in Somalia of $500.

The study, by the political and economic intelligence consultancy Geopolicity, has been prepared for delegates ahead of an international piracy conference that starts in Dubai tomorrow. It is one of the first attempts to map the economics behind piracy.

[Get a copy of the study “The Economics of Piracy: Pirate Ransoms & Livelihoods off the Coast of Somalia: e-mail piracy@geopolicity.com — safeseas]

The results, revealed exclusively to The Independent on Sunday, highlight the magnitude of the problem, with attacks at record levels and huge financial rewards set to swell the ranks of pirates. What began as an attempt to protect local waters by vigilante Somali fishermen in the mid-1990s swiftly developed into piracy that now extends to some 2.5 million square nautical miles off Somalia’s coastline, an increase of one million nautical miles from two years ago, according to the study.

Somali piracy was worth $238m last year and is set to rise to $400m by 2015. The costs of piracy could virtually double in that time – from $8.3bn in 2010 to more than $15bn (£9.1bn) by 2015.

The continued growth of piracy, fuelled by organised and armed gangs using “motherships” to enable them to attack further afield, could see the numbers of pirates, estimated to be at least 1,500, rise by up to 400 a year.

Peter Middlebrook, head of Geopolicity, said: “Pirates are the very essence of rational profit maximising entrepreneurs.” He predicted that incidents would “expand substantially beyond Somali waters – given the rising income disparity between pirates and non-pirates”.

Pirates are part of a complex “piracy value chain” ranging from financial backers to accountants and arms dealers. “The risks of piracy spreading beyond the Red Sea and Indian Ocean, off the Somali coast, and in the Straits of Malacca and Singapore and beyond are substantial,” warned Dr Middlebrook.

A United Nations source, speaking on condition of anonymity, said: “Research like this is vital, but we urgently need a comprehensive study so that we can have a united approach based on shared intelligence. There are international working groups working on specific subjects of piracy, but nobody seems to know what exactly is going on.”

Amid mounting concerns that piracy is out of control and in danger of spreading, this week the United Arab Emirates (UAE) will announce a $17m donation to the UN-backed international coalition the Contact Group on Piracy off the Coast of Somalia, according to UN sources.

Sheikh Abdullah bin Zayed al Nahyan, UAE Minister of Foreign Affairs, said: “We must all urgently double our efforts in the current international response. Global efforts are not producing the results we are all aiming for.”

Somali pirates, typically armed with AK-47 assault rifles and rocket-propelled grenades, have become increasingly violent in recent months, killing and injuring dozens of hostages.

Piracy has soared in the past five years, from 276 incidents in 2005 to 445 in 2010. Attacks for the last quarter were at an all-time high, according to statistics from the International Maritime Bureau. There were 142 attacks between January and March – 97 off the coast of Somalia – up from 35 in the same period last year. Pirates seized 18 vessels worldwide, capturing more than 340 hostages in attacks in which seven crew members died and 34 were injured.

Maritime unions are threatening to boycott certain trade routes. In February, the International Chamber of Shipping reversed its long-held position against armed security, and now suggests that it could be an option.

Source: http://www.independent.co.uk/news/world/africa/out-of-control-piracy-set-to-cost-world-1639bn-by-2015-2269013.html

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