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Tankers: Maritime threats prompt heightened security, raise costs


Large tankers paying up to $0.5 million for Middle East transit

Losses from recent attacks exceed $100 million

Ships not always able to steer clear of Iranian waters

Singapore — The attacks on tankers in the Middle East in recent months have pushed up the operating costs and prompted market participants to significantly scale up their standard security procedures to adjust to maritime threats, shipping insurers, security officials, owners and charterers said.

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Ships transiting the Middle East and Persian Gulf region area have implemented additional security measures and "we are staying in close touch with all [shipowner members operating there]," said Svein A. Ringbakken,

Managing Director, Den Norske Krigsforsikring, or DNK. It is the world's largest provider of maritime war risk cover, insuring over 3,000 ships for more than $217 billion.

At any given time, between 30 and 40 ships operating in the Middle East region are insured by DNK.

Two of the tankers attacked in May-June, the Front Altair and Andrea Victory belong to DNK members.

Neither of the attacks on these two tankers resulted in loss of life or serious injury to crews and are being repaired for return to service but an enhanced threat is perceived on commercial shipping in the Middle East region, that is particularly directed against oil and gas carriers, said Lars Benjamin Vold, a senior security analyst with DNK.


The recent cumulative losses for the war risks insurance market in the Middle East and the Persian Gulf region have exceeded $100 million, Vold said.

In the aftermath of the attack, there was an astronomical rise in war risk premia and insurers are advising their clients to preferably pass the entire burden to the charterers, said a senior executive of a western Protection and Indemnity, or P&I Club.

Ships regularly pay an annual premium for their war risk cover but an additional war risk premium, or AWRP is triggered when they move into formally designated high risk areas for war and piracy.

Since May, for some of the large tankers, just transit through the Persian Gulf region resulted in an AWRP bill of over half a million dollars, said the senior P&I Club executive tracking such deals.

Even though there has not been any major attack on ships in the region during the last one month but owners continue to shell out large sums of money by way of AWRP, the executive said. "Our brief to the owners is to pass it on to the charterers," he said.

Charterers say that this pushes up the overall cost of delivering cargoes to destination resulting in higher costs for importing crude and oil products.

The war risk insurance rates for ships operating in the Middle East has increased tenfold since the attacks in May, said DNK's Ringbakken.

"Oil tankers transiting the area can pay up to $300,000-$400,000 in war risk premium to transit the Strait of Hormuz and operate in the region," he said.

Another area with a highly volatile security position is the Niger Delta, added Vold.

The piracy problem off the Somalian coast persists and, although there have been no recent successful seajackings, several attacks have been registered, he said.


Ships carrying some flags such as UK, Isle of Man and Cayman Islands are now strictly implementing a heightened security regime than usual, said a senior executive with a global ship management company.

The International Ship and Port Facility Security, or ISPS Code, lists three levels of security threat, normal, heightened, and exceptional.

"Even though formally the Security Level 1 is in force for our ships moving in the Persian Gulf, but we are actually implementing the heightened security level 2," the executive said.

Last year, the shipping industry had also revised the Best Management Practices, or BMP to enhance maritime security in high risk area. The latest version, BMP5 are now being implemented.

Under Security Level 1 measures, a minimum of four security patrols are carried out in 24 hours, while in the current scenario, they are being carried out every half an hour, said a maritime official involved in such procedures.

The access to the tanker are limited as far as practicable to a single point, the official said.

Shipping industry executives said such procedures increase the operation costs which can not always be passed on to the charterers because the freight is determined by open market dynamics. Interestingly, the VLCC spot freight rates have declined in recent weeks due to ample supply.

S&P Global Friday assessed the benchmark Persian Gulf-China VLCC rates at Worldscale 50 points, down from w67, a fortnight ago.

"There is no extra crew put on board but there is more frequent communication between the ship and shore," said Christina Cheh, Vice President for Global HSEQ, Wilhelmsen Ship Management.

A specific approach is to be adopted vessel-by-vessel and voyage-by-voyage, Cheh said.

Some of the owners do not want any night transit through the designated "High Risk Area" while others do not want any person in the engine room during transit, to minimize risk to humans, she said.

Ships try to stay away from the Iranian waters but the earmarked traffic separation scheme, or TSS, is sometimes very close and it is not always possible to steer clear, she added.

(adds latest VLCC tanker prices and identifies the Wilhelmsen Ship Management executive by name)

--Sameer C. Mohindru,

--Edited by Debiprasad Nayak,