The business of saving ships from piracy is now apparently worth multiples of what the business of pirating ships accrues, and with shipping freight rates hardening in the dry bulk and liquid markets, and shooting through the roof in gas carrier trades, the effect of higher market values for vessel and cargo in these categories means much higher insurance costs also, which eventually get passed on to the consumer

Maritime piracy has been off the headlines for the last few months, not because it has upped and gone away thanks to a magic wand, but more so because the business of recovering captured ships for ransoms to be paid out has gone through some more evolutions. Briefly explained—preventive measures on many ships now include armed guards as well as strengthening of passive defence and the seafarers on ships that are captured are being treated as collateral damage by owners who are well covered for cargo and vessel.

In the midst of all this, a better class of owners, read—those with known background in shipping, and in it for the long run, set a pace and process which keeps people onboard in reasonable health and spirits, and also takes a pragmatic as well as humane approach in releasing the vessel, cargo (if any) and the humans on board. The release of the SAVINA CAYLYN, not without its share of drama, has been reported thus by an informed source at the maritime news website gCaptain, here: http://gcaptain.com/pirates-release-savina-caylyn/?35861

The atypical two-part ransom drop was a response to the pirates’ previous refusals to release Indian hostages, even after being paid a ransom. The trend began on 15th April, when pirates holding the MT Asphalt Venture declined to release the eight Indian members of the crew, hoping to use them as pawns in a prisoner exchange for pirates captured by the Indian Navy. Since then, pirates have repeatedly refused to release Indian nationals, and have even gone so far as to declare their intention to ‘hunt’ Indian seafarers. The two-part drop was designed to avert another bad faith manoeuvre on the part of the pirates. “It was a tactic by the ship’s owners to make sure that the Indians were released,” explained a source in the pirate gang. “After they dropped the first $8.5 million by helicopter, they requested that we release the 17 Indians in small boats, and we agreed. After they had left, they dropped the other $3 million and we released the vessel and the five Italians. The Italian-flagged MV Savina Caylyn was hijacked on 8th February, 500 miles west of India. The pirate gang, which was based in the Harardheere area, was headed by Ilyaas, a well known pirate commander from the Murarsade sub-clan (a branch of the Hawiye).

In brief, the business of saving ships from piracy is now apparently worth multiples of what the business of pirating ships accrues, the numbers being thrown around are simply unreliable because nobody knows what is really going on. Except that billions of dollars are already being spent on armed security, additional insurance, re-designed citadels, deterrent equipment and of course, all the wheels of commerce that go with it. And piracy nets gains to a variety of similar people in millions. The fence, truly, is more valuable now than the crop.

In addition, recent infighting in the piracy-impacted parts of Somalia, unseasonal bad weather, and better tracking as well as shadowing of mother ships is paying dividends on the ground. However, different tactics like pre-identification of target ships as well as the grabbing of ships from ‘safe’ anchorages outside ‘safe’ ports by pirates hiding inside smaller ships (e.g. the hijack of the FAIRCHEM BOGEY with 21 Indian seafarers onboard from off Salalah in August 2011) indicates that matters may be reaching a more organised pattern.

 This does not, unfortunately, include the effect that these episodes have on the ‘traditional’ trade carried out on deep-sea dhows, piracy attacks on which usually don’t even get reported. However, they do impact the cost of doing traditional business, and that is a truth too all along the west coast of India

The overall effect on trade and commerce for India as a whole is also snowballing, and in an already recessionary economy globally, the eventual effect has not been felt so much on unitised general cargo carried in containers, where rates are still soft. However, with shipping freight rates hardening in the dry bulk and liquid markets, and shooting through the roof in gas carrier trades, the effect of higher market values for vessel and cargo in these categories means much higher insurance costs also, which eventually get passed on to the consumer.

In other words, landed cost at Indian ports of imported products like coal, gas, crude oil petroleum products, chemicals, edible oils and other bulk products will go up on the freight account, while commodity prices like the base price of gas, crude oil, petroleum products, coal and other commodities are rising—both dollar and rupee terms. The shortage of domestic iron ore may also see the surprising truth that we may now import iron ore—at about 10 times or more than the price it was exported about a year or two ago!

The demand for coal, furthermore, is going to shoot through the roof as more and more power plants come on line in the next few months. Captive coal sources are still not ready for a variety of reasons. Backward integration with mines abroad, in Indonesia for example, is also not going to provide a fixed cost hedge since even captive coal mines in Indonesia now need to reflect international prices for export purposes.

Oil prices as well as volumes are also most certainly going to head upwards, since almost nothing has actually been done on the ground with renewable energy projects, and it does not appear to be a priority for anyone. Likewise with gas further faces a shortage of storage capacity especially on the rapidly growing and consuming east coast, as well as severe constraints of access due to low draft in ports like Haldia and Paradeep.

Add to all this, the additional cost of piracy, the shortage of seafarers willing to work in piracy-impacted areas now that the authorities have literally put their hands up, and the even higher costs that foreign flag ship-owners will charge due to the terrible state of affairs with Indian flag shipping, seemingly all this happening with the benign approval of the authorities.

Here are some indicative numbers, gathered from various authentic sources:

• The shortage of natural gas is likely to reach 30 million cubic metres per day by the end of 2011.
• The average price of imported coal has almost tripled in the last five years, from $40 a tonne to about $125 a tonne, freight extra, and rising.
• Freight rates can seldom be predicted, since they depend on a vast number of unrelated factors, but they are expected to start moving up as various international conventions on shipping start adding to the costs from 2012 onwards.
• The export of iron ore at under-invoiced prices and the re-import at inflated prices is going to be a terrible scandal soon.

So while we celebrate the return of the seafarers released from the SAVINA CAYLYN, and salute all those who negotiated at great personal risk and stress to ensure that the Indian were returned safely, we need to also look beyond at those still stranded there, and more importantly, the larger effect this is having on the economy and security of the country.

It can’t be left to the Red Cross, as the authorities are suggesting in other cases, where the owners have put their hands up.

(Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves.)