Risk To Maritime Transport

“Ships may move slowly, but they can carry far more cargo than more recently invented modes of transportation such as planes, trains, and trucks, according to the U.N. Conference on Trade and Development in its “Review of Maritime Transport 2009.” – Foreign Policy

According to this article 80% of the world’s cargo is transported via cargo ships.  That said, the fact that we are so heavily dependant on this mode of transportation adds a great layer of risks to global trade. It begs two important questions: first, what are the risks associated with maritime transport around the world? And, second how are they mitigated?

First I’d focus on the Piracy problem, which ranks high on the maritime transport industry’s risk charts. The fact of the matter is that tankers and cargo ships are being hijacked on the high seas at an alarming rate. Since 2008 pirates off the coast of Somalia have up the ante, taking to firing automatic weapons and rocket-propelled grenades on their way to making cargo ship hijacking into a growth industry.  Piracy has not only added additional cost of doing business for ship operators, but avoiding hotspots aggregates additional time to complete trips as ships sail around the Cape of Good Hope. Navigating this alternative route can take two to three extra weeks, saddling the industry with inefficiencies.

Consequently, what can cargo vessel owners do to deter/repel attacks?  They’re teaching their crew to fishtail (evasive maneuvers) their vessels at high speed, drive off intruders with high-pressure water hoses and illuminate their decks with floodlights, or emitting deafening sound waves from special devices. They’re also working on prevention protocols, mandating “pirate watches,” learning to use hoses and conduct frequent drills with alarms indicating when the ship has been boarded. They also take account of the fact that it is illegal for crews to carry weapons in the territorial waters of many nations, and many ship captains are wary of arming crew members for fear of mutinies. If gunpowder is your kind of deterrence, than go with the pros. Many PMC’s have began offering their ship protection services in the Gulf of Aden, Malacca Straits and other piracy hotspots. Of course the latter countermeasure is not without its share of controversy.

A second threat to the maritime transport industry, with high potential for disruption, is political risk. A particular concern today is the Strait of Hormuz, that narrow stretch of sea between Iran and the United Arab Emirates and Oman to its south that connects the Persian Gulf to open international waters where approximately 40 per cent of global ship-borne crude oil passes through on its way to the West.  According to the US-based Energy Information Administration, an average of 15 tankers carry 16-17 million tonnes of crude oil through the Strait every day. Needless to say this is the world’s most sensitive choke-point for vessels transporting oil. Add in the element that Iran, leveraging its sovereign territorial rights over these waters, could seek to blockade commercial traffic through the Strait of Hormuz, given an escalation of its conflict with the West.  It is indeed a factor that should be playing out in scenario planning sessions for both industries concerned.

As far as countermeasures are concern, political risk, especially the aforementioned example, is obviously an issue with implications beyond the maritime transport industry.  It’s indeed a prime policy issue on the diplomatic agenda for the US, China and Russia. The maritime industry however can’t sit around and wait for a diplomatic resolution. It must instead develop a business continuity portfolio. Knowing that such risk exposure can’t be fully avoided, ship operators should focus on strategic planning, “Mapping key supplier dependencies is the first step in taking control of the risk exposures. By identifying single-point failures and quantifying exposures, organizations can take conscious decisions to mitigate exposures.” Like the piracy issue the industry can mitigate part of the hazards through “political risk insurance” to offset the cost of rerouting its cargo. Unlike the piracy problem however, ship owners cannot deploy armed response in a potential conflict zone.

Quiz: What percentage of world trade is carried on ships? http://bit.ly/dC0i1f

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