Pirates of the Supply Chain: Cost, Insurance and Russian Cowboys (Part 1)

The price tag for this piracy protection starts around $200,000 per engagement (for more information on what the British rules of engagement and defense strategies look like, read the first installment in this series). However, the cost is offset to some degree by a reduction in the insurance rates for the shipping company that employs them.

Conversely, should you choose to ship anything through this part of the world without armed escorts, your insurance rates will skyrocket. One of the people engaged in this area whom I spoke with said that Maersk, Statoil, British Gas and several other firms were his company’s clients. Currently his unit is assigned to an oil exploration vessel that travels up and down the Gulf of Aden (Arabian Sea) looking for oil and gas by use of sophisticated sonar and similar equipment. With something like only 10 similar vessels in the world, it is exceedingly pricey.

While we talked, it was clear that he considered both his rules of engagement and equipment to be far from ideal, but shrugged it off as “not his decision” to make. He pointed out that Russians and Koreans bring their own security, and they operate quite differently. The Russians, especially, don’t mess around. Questions are asked later, if at all. Shots are aimed at, not fired across the bow. And to top it off they use far heavier weaponry.

From a procurement perspective – albeit in a cynical, even slightly morbid way – the security protocols, armed response level etc. would be interesting KPIs to add to the mix when calculating TCO around choosing which international shipping company to use for moving goods through this area. It would indeed be interesting to speak with a practitioner regarding how this is sourced, as well as with an insurance underwriter. I would expect quite different answers depending on where the company is headquartered!

The third person I met in the security trade while flying out of Nairobi was, like the two others, a Brit. He currently works for the British government as part of their embassy security, and he was on his way back to the UK for a month off after serving in Mogadishu, Somalia for a month.

He described Somalia as beyond all hope, utterly lacking in any internal governmental structure and without any effective administrative, judicial or other capabilities. Even after a few decades out, he is quite pessimistic that anything will have improved.

This conversation took place after I had met the anti-pirate contractor, so I asked him whether he had similar protocol restrictions. He replied that there are none. His team goes full force when they move around – secure convoys with at least four armored vehicles, with a total of 12 fully armed shooters divided between the front and rear vehicles. Those are not armed with bolt-action rifles…  It makes one wish that our own State Department had the same attitude toward embassy security in troubled areas.

To be continued.

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