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Pirates Affect Insurance Rates

The attempted hijacking of a U. S. flagged vessel off Somalia has not raised the cost of shipping grain and food to the region, but insurance rates have been rising due to piracy, shipping sources said April 13.

“Historically, piracy has not been a problem for the large vessels, but now in this area it has become so. Pirates have become more brazen and started to attack these large commercial vessels,” said Jay O’Neil, owner of O’Neil Commodity Consulting.

In a recent incident, U. S. forces killed three pirates holding a U. S. ship’s captain hostage off the coast of Somalia April 12, an area that has become a hotbed for pirate attacks on commercial freighters recently.

“Insurance rates always react to any sort of dangerous situation that may cause claims to increase,” O’Neil said, comparing the higher costs to the higher insurance premiums in war zones.

However, shipping sources said the higher insurance costs have been offset somewhat by the falling cost of freight and lower fuel prices.

Grain ships from North and South America can generally avoid the area, unless cargo is destined for Kenya, Somalia, or other east African countries that routinely receive food aid from the United States.

Exporters shipping grain to Asia from Europe or the Black Sea region may choose to travel the shorter route via the Suez Canal and the Red Sea and pay the premium, they said.

A U. S.-based ship broker estimated that premium at around $5,000 a day currently for a Panamax vessel, which can hold about 60,000 tonnes of grain.

Shipments from South America are largely not affected, sources there said.

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