Friday, 22 April 2011
Piracy & the economic war on our coast . . .
ECONOMIC WAR ON OUR COASTS - AND HOW INDIA CAN SNATCH VICTORY FOR ONCE . . .
In addition to writing for MONEYLIFE, as an ex-seafarer and writer, I also write for a niche shipping magazine and run this blog on matters maritime. There is a decent but loyal fan following from amongst seafarers and their family members, and till now I have resisted the temptation of cross posting, but matters pertaining to the condition of Indian seafarers and how it impacts India's economy have reached a point where things can best be described as an undeclared war on our coastline and seafarers. Frontline seafarers. representing quietly the cutting edge of India's exports and imports, are being slaughtered like sitting ducks at a country fair shooting ground. Now subject to pirates rampaging through what has always been called the Silent Service, the Merchant Navy, which as a simple matter of fact was the one uniformed service that had the highest casualties during World War II.
But this is a different sort of war, more economic, than military. The colateral and dispensable Giffen goods in this case are seafarers. Piracy has overtaken suddenly by leaps and bounds the twin large issues of fatigue and criminalisation of seafarers which have impacted seafarers the most over the last few years. Fatigue has been a problem due to cost-cutting and reduction of manpower on board, and criminalisation relates more towards Port State authorities holding seafarers as legalised hostages for a variety of issues. But rampant piracy of the Gulf of Aden/Horn of Africa sort, and the subsequent torture as well as murder, is reaching unprecedented levels - and especially for seafarers of Indian origin, because of the perceived activities of the Indian Navy in justifiably trying to control matters.
India's economic growth has not been without an increased presence at sea of Indians. Singling out Indian seafarers for torture and worse is, therefore, also having a direct impact on the competitiveness of trade to and from India. Episodes reported include hog tying people and then looping an electric cable on to their genitals such that it tightens every time the prisoner tries to shift and then placing them on burning hot steel decks without any clothes on. Another method is to take a person and lock him inside the fish room at temperatures below 20 degrees Centigrade naked or with ice in his underwear strung up to the meathooks. At least one case of keel-hauling a person below the hull of a ship has been reported. The recent case of the ASPHALT VENTURE, where half the Indian seafarers were taken off the ship and placed as prisoners ashore, is well covered. Ofcourse, the ship and cargo are held hostage all the time, while negotiations for ransom continue.
By the end of it, the seafarers are often too traumatised to want to go back to sea again, and the shipowner has lost all market worth and credibility - often going bust in the bargain. To be fair, as many foreign shipowners have been impacted as are proportionate to their presence at sea, but of late it is the Indians who are being singled out for special bad treatment.
Barring declared World Wars and historical conflicts going back to the gunboat days, Merchant Ships and those onboard worldwide are governed by the UNCLOS or United Nations Convention on the Law of the Sea, as far as free and innocent passage through defined territorial or international waters are concerned, amongst other things. Except in situations of war, when declared. Ofcourse, the Convention is far too complicated to be brought out in a short article, but to cut straight to the meat - The Gulf of Aden was declared a War Risk Area as far back as mid-2008. and over the last three years, this War Risk Area has spread to include all of the Arabian Sea and parts of the Persian Gulf as well as much of the Indian Ocean.
Look at a map of India, and you will see how we are now surrounded by a total "War Risk Area", and reports of torture as well as killing of Indian seafarers now coming in make no bones about the simple fact that for the other sides, truly a war is on - it has just not been declared, and it is fairly seriously suspected but not with proof yet on who is financing the war against India. Though it is very clear that the after-effects will have a major damaging and negative impact on India's economy.
Here are some simple numbers, which will help quantify issues:-
# War risk extra insurance for hull and machinery (the ship itself, not including personnel and cargo) was about 500/oo dollars per transit in the Indian Ocean till around 2008, went up to 150000/oo dollars in 2010, and is rising even higher in 2011. This is for a typical Panamax sized bulk carrier transporting about 70-80 thousand tonnes of coal. More for bigger oil tankers and container ships.
# Exact numbers on Kidnap & Ransom insurance for crew members are never declared, but are estimated to have gone up by 30 times between 2008 and 2010, for ships in and around the War Risk Zones. Cover for cargo and property as well as medical and trauma coverage for crew and families has now been added, raising the costs even more.
# Cargo insurance numbers are also not well known, since they are usually covered separately by the charterers and cargo interests, but in the case of typical 20' containers, have gone up from 25/oo dollars to between 200/oo and 350/oo dollars, depending on a variety of factors. It is estimated that cargo insurance rates for bulk cargoes have also gone up 25-30 times in the last three years.
# Damage hull insurance, which typcally covers damage due to a variety of reasons, including harm from heavy seas, collision, sinking, capsizing, grounding, fire or piracy. It is estimated that piracy has doubled the cost of hull insurance on a global annualised basis.
# Much of the business which was done on easy credit terms achieved variously with India being the beneficiary of good credit ratings have moved into cash up front (FOB loadport) for imports into India and payable when cargo reaches destination (CIF discharge port) for exports from India. There are major cash-flow issues here which basic traders and businessmen will understand.
In addition, ofcourse, seafarers are simply refusing to sail in these waters on unarmed and unprotected ships, no longer is it a question of just additional money. Where Indians can not be found, the shipping companies employ people from other countries, and/or also place armed guards on board, which typically costs between 1 and 2 thousand dollars a day for a group of 4 commandos, all other costs at actuals. The legalities of armed guards on board is still a wide open issue.
The big beneficiaries here are, obviously, the insurance companies. Not only are their insurance premia going up, but some of them are getting into the business of organising "non-commercial" protection services at sea, often as part of the insurance package. The name of at least two specific international banks and two payment processing/remittance companies based out of the developed countries have been mentioned with some amount of credible association to the money trail, which is estimated to be around 9-10 billion dollars this year.
In addition, it is estimated that only about 50% of piracy cases are being reported, the rest choosing to stay quiet so that negotiations and reputations do not suffer.
The Indian coast as well as ports are at the epicentre of this violent attack on the shipping economies, and are projected to be the single largest sufferers, with further impact on India's economy as these additional costs will all be loaded on to the transportation costs. At the beginning, people used to think that piracy was due to local reasons, and reacted accordingly. Subsequently, the big names moved into the global piracy support business, and converted it into corporate entities. Now, in the next evolution, it seems that this has moved on to war between countries aiming to damage others economies.
And by India's geographical location, the choice of fall guy country appears to be obvious.
What are the solutions, then?
For one, the Indian Government needs to understand and accept that there is a war on, and the biggest loser will be India since the battlefield will be the oceans around India. This has to be understood, and then pro-active steps taken to ensure that Indian shipping interests and cargoes are not targeted - for far too long has India been following a lose-lose policy in the Indian Ocean. To start with, the island of Perim in the middle of the Bab-el-Manded, on which India had historical rights, needs to be controlled. Likewise, Indian warships need to be given the right to use islands in the Chagos Archipelago, just as the US utilises Diego Garcia, for use as a base to launch counter moves against the pirates.
Next, immediate steps to protect India's oil exploration industry, which sits very close to the scene of action. There are all sorts of reports floating around, including rumours of mini-submarines of unknown origin, which could also be an extension of the rapidly technologically evolving piracy business. Already, from small boats doing 10-12 knots, the pirates have moved ahead to high-speed skiffs doing 25 knots launched from secure mother ships. And our dependance on our oil exploration industry can not be risked.
Thirdly, the names of the banks and financial processing companies suspected to be in this business are well known, and they happen to be present in India on legitimate business too. Nothing strange about this, bankers have financed wars in the past too, often for both sides - Rothschilds being just one name which has come up again and again, and continues to do so. The Indian Government and its new found financial muscle must get the message across that this sort of economic warfare will not do. Reports on senior persons from these banks and payment companies visiting India in the recent past to get a bigger share of the pie, for example in the railways or the insurance business, have been doing the rounds - and having not got an entry, this is their logical retaliation.
And finally, the Ministry of Shipping and its subordinate offices have to take pro-active steps in advance to protect Indian shipping interests. UNCLOS is fine, but we can not continue to be the pleasant self-effacing fools at sea, when everybody else has upped the stake. If we have to be more resilent, if our ships have to be armed and hardened, and if we have to take risks to establish our positions, then so be it - our seafarers are willing to go out to fight for flag and country, but not with their arms tied behind them.
There is a war on off our coasts, we are already surrounded by a "War Risk Zone", and we need to do something about it now. Moaning and groaning about seafarers held in captivity is not going to solve issues - no seafarer was forced to go on a ship and take these risks. It is just that some of us need to raise our voices so that the larger problems are recognised, identified - and then solved. And if for that we have to arm our Merchant Marine as a first step - then so be it.
The sooner the better. Otherwise, with every day, the numbers are mounting up against us. Arm our boys NOW, and give them a chance to do their duty to flag and country, that's what it has always been about. The war moved out of pure military engagements to economic warfare - well, the response has to be along those lines, too.