FocusPiracy in Gulf of Aden to jeopardise trade on Europe-Asia leg

02 April 2009 16:59  [Source: ICIS news]

By Dan Horlock

LONDON (ICIS News)--The threat of piracy in the Gulf of Aden and the additional costs being placed on ship operators will jeopardise the future of eastbound trade to Asia, according to ship owners on Thursday.

“These costs constitute $2,000 less on the net daily return for journeys to the Far East, which means that we cannot compete because the market does not support it,” said one operator.

Insurance and bonus costs for a 10,000 deadweight tonne (dwt) vessel were at price levels of $30,000 for EWRI (Extra War Risk Insurance), with kidnap and ransom costs at $30,000 and an additional crew bonus at $15,000 as per ITWF (International Transport Workers Federation) scale, owners reported.

This was in addition to the transit cost imposed by the Suez Canal Authority, which is understood to be around a $100,000 lump sum for 6,000 tonne dwt vessels.

As a consequence some operators were dismissing possible arbitrage opportunities for chemical products.

Upon learning of the additional costs another ship operator, which had been contemplating using the Suez Canal due to the firming Asian market, stated that there was no possibility of working any cargoes eastbound in the near future.

“For these additional costs to represent one freight shipment is absolutely scandalous. Who can justify that the EWRI costs $30,000?” the source said.

A northwest European owner added that there were other considerations involved in transiting the Suez Canal and the Gulf of Aden.

“In addition you need to consider that ships passing through the Suez Canal and the Gulf of Aden need to pick up guards from south Yemen and disembark them, which means more time and more costs,” the source said.

An alternative to the Suez Canal and the Gulf of Aden would be to sail via the Cape of Good Hope, which traders deemed unworkable.

“Going via the Cape [of Good Hope] is not an option as it takes an extra 20 days, which means that buyers would need an extra 20 days credit. This is very difficult to secure from the banks at the moment,” one lubes trader said. 

Over the past six months, the Europe to Asia leg was noted as the firmest market out of Europe due to Chinese demand, although freight rates had decreased an average of 19%, according to global chemical market intelligence service ICIS pricing.

However, brokers and charterers were sceptical of the owners’ motives for publicising this information.

“Owners going through [the] Suez [Canal] are asking for strange piracy clauses while putting all the additional costs on an account of the charterer,” one Black Sea trader said.

A lubes broker that had used the Suez Canal for its last ten fixed pieces of business was unsympathetic to the owners’ plight.

“The bigger parcel ships include these costs into the price of freight but ultimately this is their dilemma and they have to accept the present state of the market,” he said.

Another broker said that one owner was quoting a piracy surcharge of $5/tonne on 5,000 tonne parcels passing through the Suez Canal. Some brokers also stated that they used the Intertanko Piracy Clause, which stipulates additional expenditure and cost sharing measures, in addition to the EWRI.

The outlook for owners targeting the Chinese market was far from ideal as kidnap and ransom risk specialists, G4S Risk Management, predicted that the piracy situation in the Gulf of Aden would get worse before it gets better, continuing for at least the next couple of years.

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By: Dan Horlock
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