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business crude carriers
The true cost of piracy for crude carriers
The escalation of piracy in one of the world’s most important petroleum trade lanes has added significantly to the cost of doing business for charterers and owners*
T
he relatively slow speeds of fully laden tankers make them vulnerable to hijacking attempts. Practices to prevent
and respond to piracy vary widely within the industry, but most often include measures such as deviation to avoid high-risk areas, increased insurance coverage to account for war risk and piracy, and the use of private security and armed guards. These practices have become routine for many trades out of the Arabian Gulf, adding to the overall ton-miles travelled on westbound voyages, and causing increased negotiation between shipowner and charterer over who will be stuck paying for anti-piracy measures. The heightened risk of traversing seas along
the Horn of Africa has discouraged routing of large crude carriers through the Suez Canal. While overall spot fixture activity out of the
Arabian Gulf is expected to reach levels seen in 2008, the Suez Canal Authority has reported only 76 laden tankers larger than 150,000 dwt have transited the Suez Canal year to date, suggesting around 100 transits over the whole of 2011. This would reflect a decrease in activity of over 50 per cent since 2008, when over 220 VLCC and Suezmax tankers were reported to have passed laden through the Canal on westbound voyages. Both as a result of a weakened market
and increased risk in crossing the Red Sea, most owners have preferred routing around the Cape of Good Hope. As the piracy problem has escalated, language in charterparties has been expanded to include clauses mandating alternate routing to avoid areas of high risk. Depending on actual routing, these diversions can add approximately three to five days to the laden leg of a voyage from the Arabian Gulf to markets west of the Suez Canal.
As a general rule, owners and charterers split
the cost of deviation down the middle. However, in a weak market, bunkers tend to account for a higher percentage of overall voyage costs, and the price of additional bunkers burned has more impact on owners’ overall earnings. Even without diverting for piracy, bunker costs on the
www.tankershipping.com REPORTED SPOT AG/WEST LIFTINGS VS. SUEZ CANAL TRANSITS
350 300 250 200
150 100 50 0
2008 Suezmax (Reported) 2009 VLCC (Reported)
laden leg of the Arabian Gulf to US Gulf trade currently account for over 50 per cent of total voyage costs, as rates have averaged less than WS 37 over the course of 2011. As a result, owners have been bearing the
brunt of these additional voyage costs from an earnings perspective, even after charterers pitch in their share. As piracy operations have become more sophisticated, deviation has ceased to be a fail- safe protection against hijacking. Advances in communications and the use of motherships have extended the reach of pirates to areas further off the East African coast. Protection and Indemnity (P&I) clubs have
extended risk areas to include the Indian Ocean, Arabian Sea, Gulf of Aden, Gulf of Oman, and Southern Red Sea, increasing insurance premiums for voyages crossing these waters.
EFFECT OF PIRACY ON ARABIAN GULF–WEST VOYAGE ROUTING of Piracy on Arabian Gulf – West Voyage Roun
Roung Mediterranean Sea
Suezmax & VLCC routing through the Suez Canal has tapered off due to increased risk of piracy in the Red Sea
Suezmax & VLCC
through the Suez Canal has tapered off due to
increased risk of piracy in the Red Sea
Red Sea
Normal Suezmax and VLCC roung for Arabian Gulf –West is about a 30 day voyage, on desnaon
Normal Suezmax and VLCC routing for Arabian Gulf
- West is about a 30 day voyage, depending on destination
Arabian Sea
Indian Ocean
Suez Canal
Suez Canal
Routing to avoid piracy adds 3-5 days to laden voyage time
Roung to avoid piracy adds 3-5 days to laden voyage me
Arabian Gulf Gulf Gulf of Oman 2010 2011E Total Suez Canal Crossings - 150-300+kdwt The use of armed guards has been perhaps
the most controversial anti-piracy measure employed by the shipping industry. The Baltic and International Maritime Council estimated that armed guards are now present on 5–10 per cent of all transits through the Indian Ocean. According to the Independent Maritime Security Association, the use of armed guards typically adds up to US$50,000 to vessel transit costs. There is little consensus on who, as a general rule, should be paying for them. The political instability of some East African
nations makes it unlikely that the threat of piracy in the region is going to diminish anytime soon. This suggests that the market will continue to see longer overall voyage times for westbound crude oil liftings, contributing to effect ton- mile demand for VLCC and Suezmax tankers. And while governments and international organisations have been quick to offer guidance in dealing with piracy risk, the industry has largely been left to fend for itself. Tanker owners and charterers have put
much collective effort towards finding solutions. However, market dynamics are most likely to dictate who foots the majority of the bill. Charterers will likely have more leverage while owners fight for precious cargoes; however, they may prepare to pay up when vessels are in short supply. TST
*Acknowledgements: Poten Tanker Market Opinions are published by the Marine Projects and Consulting department at Poten & Partners.
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Tanker Shipping & Trade I October/November 2011 I 59
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SOMALIA
No. Movements
Poten, Suez Canal Authority
Somalia
Gulf of Aden
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