Continued piracy could push up supply chain costs by 150 per cent

30 May 2012

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30 May 2012 | Kamalpreet Badasha

Shipping costs could rise by 150 per cent over the next 10 years, if piracy in the Persian Gulf continues to increase.

A report said new criminals joining the ranks of pirates in Somalia would push up the cost of security and insurance premiums.

The study, Managing Supply Chain Risk: Understanding Piracy Threat, published by AT Kearney and the Gulf Petrochemicals and Chemicals Association (GPCA) detailed three possible outcomes affecting supply chain costs in the Gulf depending on how the piracy problem is tackled.

The first of these - if pirate attacks increase - will dramatically raise supply chain charges. The current cost of pirate attacks off the coast of the Horn of Africa is estimated to be between $3 billion (£1.9 billion) to $6.5 billion (£4.15 billion).

In the second scenario – an increase in international counter piracy measures would contain the rate at 30 to 50 per cent of its current intensity. There would be no additional cost to the supply chain. Lower ransoms would help reduce costs, but these would be offset by higher spending on security. Insurer premiums would remain stable.

A third outcome - the economic stabilisation of Somalia - would be a permanent solution where piracy would be eradicated from the region. Additional costs would initially remain the same for the next two or three years, but would start to decrease later along with insurance premiums.

But the report predicted piracy would remain a problem in the region for at least the next 10 years.

“In the short term, Gulf petrochemical companies and the international shipping community are advised to protect their investments through proper planning, adopt preventative measures, and engage with prudent ship-owners supporting governmental actions,” said Abdulwahab Al-Sadoun, secretary general of the GPCA.

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