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Pirates send shipping firms on costly detour

Modern-day pirates are forcing their prey to take extraordinary measures to escape brazen attacks on the open seas, prompting ships to take circuitous routes that add tens of thousands of dollars to the cost of each trip.

Dozens of vessels this year have been hijacked in the Gulf of Aden between Yemen and Somalia this year, and increasingly pirates are extending their reach farther south along Africa's coastline.

Last weekend, in a move heard around the world, pirates seized a supertanker loaded with more than two million barrels of crude, attacking the Saudi-owned Sirius Star about 800 kilometres southeast of Mombasa, Kenya. Yesterday, they demanded $25-million (U.S.) in ransom for the oil shipment worth roughly $110-million.

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The pirates are heavily armed bandits who operate in high-speed boats often launched from ships.

United Nations Secretary-General Ban Ki-moon estimated pirates off Somalia have raked in $25-million to $30-million in ransom this year.

"We believe that piracy in the Gulf of Aden is a threat to important international trade lanes and therefore an international security issue," Denmark's A.P. Moller-Maersk AS said yesterday from Copenhagen.

Maersk, Europe's largest shipping line, said its oil tankers will now steer clear of the Gulf of Aden off the east coast of Africa "in order to continuously ensure the safety of our crews as well as vessels and cargo" owing to the "recent development in piracy hijackings in the area."

Maersk is diverting vessels so that they "seek alternative routing south of the Cape of Good Hope and east of Madagascar." The Gulf of Aden connects to the Red Sea and leads to Egypt's Suez Canal - the preferred route for shippers because it cuts several days off trips, compared with the circuitous route across the Cape of Good Hope on the southern tip of Africa, dividing the Atlantic and Indian Oceans.

The International Maritime Organization reported that a sailing from a Saudi oil port to Gibraltar could double in distance using the longer route.

Maersk's move followed Norway's Odfjell SE, which said that "all its owned, managed and time-chartered ships that normally would sail through the Gulf of Aden" will be rerouted via the Cape of Good Hope. "We will no longer expose our crew to the risk of being hijacked and held for ransom by pirates in the Gulf of Aden," Odfjell chief executive officer Terje Storeng said in a statement.

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Navies around the world are doing what they can to combat pirates, but the shipping companies need to step up their efforts to protect their vessels, the U.S. Defence Department said at a news conference.

It's unclear how much of the extra shipping costs will be borne by customers, but freight rates have already plunged this year.

Fearnley Consultants, experts in global shipping markets, said in a recent report that rates for very large crude carriers, known as VLCCs in industry lingo, "remained under downward pressure and there is little to indicate any immediate improvement."

The ocean shipping sector is also bracing for escalating insurance premiums to reflect rising risks on the high seas.

Lloyd's List, a leading publication in the shipping industry, estimates shipping firms could face extra insurance costs of $400-million annually owing to the extra risks of piracy. It could cost at least an extra $20,000 in premiums for each trip, and thousands of dollars more in fuel.

The shipping industry is already struggling amid the global financial crisis, as tight credit markets slow down the movement of cargo, interrupting trade around the world. The economic slowdown is also reducing demand for consumer products and bulk commodities, including Chinese imports and exports.

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A key issue in 2009 will be the economies of China and India, "where growth in crude oil imports will be needed to maintain freight market strength," London-based shipbroker ICAP Shipping said.

The Baltic Dry index, a shipping barometer of the volume of global trade, has tumbled to its lowest level in nearly a decade. After hitting a record high of 11,793 points in May, the index has plunged 93 per cent. Yesterday, the index fell 12 points to 847 points.

Even before the piracy crisis, the shipping sector saw its rates collapse, with spot freight rates to charter ships to carry dry bulk goods plummeting to an average of $7,340 a day at the end of October from a daily peak of $233,988 in June, according to London-based shipbroker HSBC Shipping Services Ltd.

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