Navy - Articles

The Lloyd's Market Association's Joint War Committee (JWC) has declared the Straits of Malacca and 20 other maritime areas in West Asia and Africa as highly prone to piracy, war, strikes, terrorism and related perils. The West Asian countries include Bahrain, Iraq, Israel, Lebanon, Qatar and Saudi Arabia. Interestingly, Iran does not figure in the list of countries recommended for special attention. In Africa, Nigeria and Somalia are considered security threats to shipping. The JWC decisions are generally followed internationally and this move is fallout of a report that warns of an Al Qaeda attack on a "significant maritime target" this year. It is feared that Al Qaeda could exploit piracy in the Malacca Straits to attack ships.

Meanwhile, the Malaysian Transport Minister Datuk Seri Chan Kong Choy, after inaugurating the third annual Indian Ocean Research Group (IORG) International Conference in July 2005, termed the JWC declaration as "over-dramatic." The shipping community too has echoed a similar response and is gearing up to leading a regional charge to overturn this war risk assessment. They believe that the assessment could hit economies across Asia as increased costs inevitably flowed down industry supply chains. Lloyd's Market Association has defended the move and noted that underwriters' are not looking to stop trade; instead, they are looking to assess their own exposures and help the trade by providing a realistic approach.

War risk in the maritime domain is not a new phenomenon. Shipping transiting or proceeding to regions or areas prone to war or threat of a war have been subjected to additional insurance surcharge. For instance, insurance underwriters had declared Sri Lanka a war risk zone following the attack on Colombo International Airport in 2001, which led to the destruction of several commercial aircraft. Shipping companies had to pay an extra $350 per container for Sri Lankan imports and exports to cover vessel calls at Colombo. After suffering for almost one year, the Sri Lankan government had to request global insurance giant Lloyds of London to engage in a security audit of Colombo, Galle and Trincomalee ports, and the Bandaranayake International airport. It was only after a favourable report that shipping insurance rates finally reduced and war risk charges abrogated.

Similarly, during the 2002 military standoff between India and Pakistan, ships calling at the Indian ports of Mumbai, JNPT, Kandla and other ports in the region (ports 18 degrees Northwest of 73 degrees East) had to pay additional war risk premiums (WRP). Similarly, war risk surcharge imposed on Pakistani cargoes attracted an additional weekly WRP of about 0.75 per cent of the insured value of a ship and this would have cost more that Rs10 billion annually to the government, had the standoff continued. The All-Pakistan Shipping Association had lamented that Pakistan's economy could not afford such a high WRP as it was facing Balance of Payment problems and disruption of exports. Besides, the US and coalition navies were patrolling the Arabian Sea and there was no danger to cargo ships transiting to and from Pakistan and WRP was uncalled. Interestingly, during the wars of 1965 and 1971 between Pakistan and India, no war-risk premiums had been imposed on trade cargoes.

Entities like the JWC and the International Maritime Bureau (IMB), an organization under the International Chamber of Commerce (ICC) appear to dictate the maritime security environment. This has given rise to a lucrative private security industry, which is engaged in providing safe passage to maritime shipping. Security firms are willing to escort cargo ships and a mission could starts at $50,000. Alex Duperouzel, managing director of Background Asia Risk Solutions (BARS), a security firm based in Singapore, while speaking to the Sunday Herald noted, "We are not in the business of eradicating piracy. But we are in the business of suppressing it and protecting our clients." BARS formerly specialised in kidnap and ransom operations, employs around 60 US and Commonwealth ex-military and police personnel who either provide armed protection on board vessels or accompany alongside in a chartered patrol boat. These developments point to the fact that there is a move towards privatization of security. According to analysts, in the 1990s, there has been a rapid growth of private military security agencies and the private security trade will grow from $55.6 billion in 1990s to $202 billion in 2010.

By declaring regions as piracy prone or war torn and imposing WRP, the insurance industry appears to be engaging in coercive diplomacy. Historically, coercive diplomacy has been a state function and a tool of statecraft. In the maritime domain, it is meant to use naval force or the threat of limited naval force, other than an act of war, in order to secure advantage or to avert loss, in furtherance of an international dispute. However, entities like the JWC and IMB have been successful in engaging in coercive diplomacy to shape maritime security environment. Like all private enterprises, these ventures are commercially driven and their services have certainly forced governments to respond to their risk assessments.