Higher risk premium due to higher risk in Gulf of Aden

SHIPPING companies may have to pay higher premiums for their vessels plying in the pirate-infested areas in the Gulf of Aden and along the east coast of Africa.

Marine insurance underwriters in London said the enhanced risk in the area would prompt an increase in premiums.

So far this year, pirates have hijacked about 39 vessels in the Gulf of Aden, with the latest being the Sirius Star, the largest ship to be hijacked so far, which was carrying two million barrels of crude oil.

Large ships usually have three types of insurance policies namely hull policy, which covers physical risks; protection and indemnity policy, which covers matters concerning crew; and war risk policy, which covers acts of terrorism including piracy.

The war risk policy has a clause that requires extra premium charges for ship plying dangerous areas such as the Gulf of Aden.

MISC Bhd, which has also fallen victim to piracy acts in the area, said it had not been charged any additional premiums by its hull and war risk underwriters.

Two of its vessels, MT Bunga Melati Dua and MT Bunga Melati Lima were hijacked in the Gulf of Aden in August and were released after ransom was paid.

A company spokesperson told StarBiz that underwriters generally charged additional premiums by applying a certain agreed rate to the total loss value of the vessel that transit either the Gulf of Aden or any other listed areas falling under the war exclusion zone as defined by the Joint War Committee (JWC).

JWC is a group of marine underwriters based in London.

According to the spokesperson, MISC’s ships were still plying within the safety corridor of the Gulf of Aden, accompanied by Royal Malaysian Navy vessels.

This is because the alternative route via the Cape of Good Hope will incur extra cost.

“Going by the Cape of Good Hope means spending more fuel of about 30 to 35 tonnes per day for an extra 12 days at least, not to mention all other consumable and consumption.

“Additionally, we also will loose out on charter hire earnings for the extra days if the charterer does not agree to the route.

“Also, to maintain the schedule reliability of the service, an extra vessel needs to be injected into the service if we opt for the alternative route. This will increase the system cost by one more vessel,” he said.

In contrast, he said MISC would save on fuel and other costs and would only have to pay approximately US$180,000 per transit toll at the Suez.

“Risk-wise, with Somalian pirates moving further down south, a journey via the east side of African Continent through the Cape, will mean that the vessel is still exposed to the Somali pirates and we also have to face the harsh weather at the Cape,” he said.

Source: Star Online