For most British Columbians, pirates are the stuff of children’s books and Johnny Depp movies, but the romanticized villains are proving to be an all-too-real problem for B.C.’s shipping companies.
Pirate attacks, ship hijackings and hostage-takings off Africa’s Somali coast and throughout the Indian Ocean have escalated rapidly since 2008. Somali pirates dominate the violence. According to a report on piracy by the International Maritime Bureau, a division of the International Chamber of Commerce, pirates killed seven seafarers and took 353 hostages in the Somali area in the first six months of 2011. As of the end of June, pirates were holding 20 vessels for ransom and 398 crew members hostage.
More than 13,000 kilometres away in B.C., that violence is rocking the province’s local and foreign-owned shipping companies.
“Those particular waters, because they include access to and from the Suez Canal, pretty much impact every [shipping] company that is doing business here in B.C.,” said Stephen Brown, president of the Chamber of Shipping of British Columbia. “They’re all international traders and that’s a large piece of the world’s oceans.”
Canada has participated in multinational naval efforts to police the area with warships, but Brown said the efforts aren’t solving the problem.
“We’re talking about an area the size of Europe with something between 15 and 20 warships to cover it, which is obviously not very much.”
Weekly piracy risk
For Vancouver-based energy shipping company Teekay Corp. (NYSE:TK), Somali pirate attacks are a weekly risk.
“We have a significant number of vessels trading in that area or transiting – at least one a week and sometimes two or three,” said Graham Westgarth, Teekay’s executive vice-president for innovation, technology and projects. To date, he said, no company ship has been attacked.
“We’ve been approached [by pirates] but then if the vessel exhibits some awareness, often the skiffs just leave and look for a softer target.”
Westgarth said ships use a range of industry-advocated pirate-deterrence practices that include using fire hoses to create a water curtain around a ship.
He said Teekay’s vessels are also changing their routes significantly to allow them to sail through safer areas, such as the west coast of India.In addition, Westgarth said the company started hiring armed guards six months ago to protect what it deems to be high-risk pirate targets: slow ships with low-lying decks that can easily be boarded.
Westgarth said those measures can add up to $100,000 and four or five days travel time to each ship’s voyage. But he pointed out that refusing to trade in the area isn’t an option for many shipping companies.
“Most of the oil that goes to Europe comes from the [Persian] Gulf. If you stop trading there then pretty soon, Europe would run out of energy.”
Lost opportunities
Aside from hurting B.C.’s few locally based shipping companies such as Teekay, Somali piracy is affecting international shipping companies with B.C. operations that dominate the province’s shipping industry.
The operational base for Hong-Kong-based Fairmont Shipping (Canada) Ltd. is in Vancouver, where approximately 45 employees manage 22 ships worldwide.
Samuel Tang, vice-president of Fairmont’s shipping and operations department, said when the piracy problem erupted, Fairmont decided to avoid operating in the area – and thus gave up those business opportunities. The driver behind the decision, he said, was simple economics: the area’s sky-high insurance premiums could cost a company as much as $150,000 per voyage for a ship weighing 46,000 deadweight tonnes.
But he said avoiding that high-risk, high-insurance area stopped being viable in December 2010, when London underwriters radically increased the size of the area where anti-piracy insurance is required. Since then, he said, the whole Indian Ocean is subject to war-risk premiums. That eliminated Fairmont’s ability to navigate around the danger areas – and the extra costs.
“If the entire Indian Ocean is included, then you can’t avoid it; one way or the other, you’ve got to cut through it.”
Safety at a premium
Tang said the company has operated in the Indian Ocean a few times since December, but mostly near India, well away from the piracy epicentre.
He said the risk-averse company will likely pay both armed guards and an optional layer of insurance (kidnap and ransom) when it has to run ships in the area.
Tang emphasized that it’s the menace of multimillion-dollar ransoms that makes Somali piracy so much more threatening to companies than, for example, the long-standing piracy problem in the Malacca Strait.
In Southeast Asia, he said, pirates just rob ships and leave.
“In [the Malacca Strait], if you’re unlucky, your losses are confined and can be calculated, but in Somali areas, it could be disastrous.”
Tang noted that even companies with kidnap and ransom insurance can’t be sure their coverage will be sufficient for pirates’ escalating demands.
Labour woes
Besides their financial impact on the industry, Brown emphasized that pirates are taking a human toll – and one that’s making it trickier for shipping companies to recruit seafarers worldwide.
Somali pirates, he said, have killed more than 50 seafarers since piracy erupted in the region. In the past year, Brown said, pirates have been regularly torturing seafarers to pressure ransom negotiators.
“Some of the documented torture methods are hoisting crew members upside down in refrigerated compartments on the vessel until they’re near death, daily beatings and even in one case, a public execution in full view of a warship.”
Brown added that piracy is undermining the recruitment and retention of seafarers in the Philippines and other developing countries and convincing ships’ officers from developed countries to leave the industry.
While Westgarth said Teekay has yet to be affected by piracy’s impact on recruitment, Tang said the problem is exacerbating a global labour shortage for seafarers.
Westgarth added that if piracy continues to flourish, the industry’s future talent pool will be seriously compromised.
“There will be a long-term impact in this area, as young people will not wish to enter the profession.”
Pirate-driven growth
But while piracy is hurting the business of B.C.’s shipping companies, it’s helping drive one local company’s exponential growth.
Launched in 2008, Vancouver-based Canadian Sea Marshals Tactical Teams (CSMTT) provides armed four-man security teams for ships travelling in the pirate-infested Gulf of Aden and throughout the Indian Ocean.
Dave Jackson, CSMTT’s president and director of operations, said it’s the first company in Canada to target this business area.
He said CSMTT has grown from “a four-man show” to its current 75 employees and expects to hit 150 by Christmas.
“I’d say in the last three months it’s just sort of exploded.”
Jackson added that CSMTT is projecting fiscal 2011 revenue of $6 million. He said the company hires ex-Canadian Forces personnel, current reservists and police officers. CSMTT then provides them with additional training – particularly in their legal obligations under Canadian law if they’re defending a client against a pirate attack.
Jackson said besides managing rapid recruitment, the company’s chief challenge is keeping abreast of, and adapting to, a host of new insurance-driven rules being applied to the emergent security industry off the coast of Somalia.
“Part of the frustration of this whole industry is that we’re governed by so many different rules, so many different policies, yet the pirates have zero rules.”
The fledgling industry has been slapped with the “mercenary” label in the international media, but Jackson said his company is anything but that.
“We’re not going into a country and trying to destabilize it, which is the primary purpose of a merc. We’re highly trained, and my back goes up immensely when I get people calling us mercenaries.”
As to whether the company has a future without a thriving Somali piracy trade, Jackson said he’s working on other business options, but declined to disclose what.
“But piracy – it’s not going away. Definitely not.”
No end in sight
Westgarth said pirates have started using captured ships as “motherships,” travelling up to 1,000 miles off the Somali Coast before launching their attack skiffs.
“The more deterrents you put in place, the more inventive the pirates become.”
Westgarth, Tang and Brown agreed that in the short term, companies’ best defence against ever-increasing attacks is to engage armed guards. Brown said that thus far, no ship carrying armed guards has been hijacked.
But B.C.’s shipping industry is calling for broader solutions than what the private sector can provide.
“It’s a situation that needs resolution,” Westgarth said, “and the industry hasn’t got the wherewithal to do that; it’s really up to government and navies to do that.”
Westgarth and Tang are advocating a warship blockade of Somalia’s coast to stop pirates from leaving shore. Westgarth added that navies policing the area need broader powers to capture – and hold onto – pirates.
Where does piracy currently rate on shipping companies’ agendas?
Neck and neck with low shipping rates for top position, according to Westgarth. “But I would say piracy is number 1 because that actually has an impact on people.”
In January, the Oceans Beyond Piracy project, funded by Louisville, Colorado-based non-profit One Earth Future Foundation, estimated the annual cost of worldwide piracy at between US$7 billion and $12 billion, with the bulk of that incurred in the Somalia area. •
