This Day On The Street
Continue to site
ADVERTISEMENT
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

The Pirates' Toll: High Stakes on the High Seas





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 21

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
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!
SYM TRADE IT LAST %CHG
GNK $0.00 0.00%
EXM $0.00 0.00%
EGLE $8.49 0.00%
DRYS $0.75 0.00%
DSX $6.30 0.00%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs