This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Pirates' Toll: Shipping in the Wake of Somalia

Stocks in this article: DRYS NMM FREE GNK FRO EXM EGLE

That so many dry-bulk-carrier and tanker operators have suffered attacks and hijackings should surprise no one. These ships are, in the nautical argot, slow and low. Their tonnages sink them into the sea, closing the distance from deck to waterline -- the freeboard. They move at a deliberate pace: 14 knots and slower. They present to pirates the easiest targets on the oceans, like fat antelopes to a pride of lions.

In response, marine insurance companies -- whose byzantine policies sometimes baffle even those who have spent careers deep inside their codicils -- have jacked their rates. The Gulf of Aden and an enormous swath of the Indian Ocean from the coast of East Africa to the Seychelles has been declared, for insurance purposes, a war zone.

This means that shipping companies, or the outfits that charter merchant ships to transport their cargos, must purchase a special kind of insurance at a premium -- in effect a kind of tax -- for each voyage through this "war risk" region.

Both the premiums and the area described by the zone were at the end of 2009 expanded once again, under the auspices of a junta of British maritime underwriters and syndicates and reinsurers and indemnity clubs called, ominously, the Joint War Committee. London is basically the world headquarters of marine insurance. (Though, somehow funnily, AIG (AIG) has a very large practice in this area.) This makes sense. The business of underwriting insurance was pretty much invented in the seventeenth century in a London coffee shop, a ship captains' hang out where they traded gossip, gambled, and sold each other guarantees on the value of goods sailing on English ships throughout the world. The coffee shop was known as Lloyd's.

Prices for insurance depend on the size of the ship, the type of cargo, the number of potential piracy-induced costs you want covered, and "how good you are at negotiating with your insurance company," says Per Gullestrup, CEO of Copenhagen's Clipper Group, which had a chemical tanker abducted in the Gulf of Aden in 2008 pirates aboard the ship are pictured above . In total, shippers end up paying anywhere from $20,000 to $100,000 per vessel per voyage through the war zone. Multiply that times the number of merchant ships going through the area each year and the amount paid to the insurance industry by shipping companies approaches $1 billion per annum.

3 of 5

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs