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JLT plans launch of private navy

Posted On: Jan. 23, 2011 12:00 AM CST

JLT plans launch of private navy

Ships transiting the pirate-infested waters off the coast of Somalia will have firepower at their sides later this year if an escort patrol developed by an insurance broker is able to navigate a few more legal and financial obstacles.

Jardine Lloyd Thompson Group P.L.C. has spent the past two years developing the Convoy Escort Program, a separate, nonprofit company that will operate 16 armed patrol boats in the Gulf of Aden with crews consisting mainly of ex-military personnel who are trained to intercept pirates before they can hijack merchant ships.

JLT expects funding for the company to be in place by the end of February, a spokesman for the London-based broker confirmed. Flag states that regulate vessels passing through the region need to approve the escort program before it can begin, he said. Once those tasks are completed, the first patrols could be in the Gulf of Aden within six months.

The Convoy Escort Program will have its main office in London and a regional operation in an undisclosed location.

“JLT is facilitating establishment of this program for the shipping industry,” the spokesman said. “As far as we are aware, there aren't any proactive solutions” such as the escort program to protect ships from pirates, he said.

The program will be led by a CEO and an executive board chaired by a shipping company executive, none of which have yet been named. Its profits derived from fees for services provided will be donated to the International Trust Fund established by the Contact Group on Piracy off the Coast of Somalia, which was set up to combat the problem through more rigorous prosecution of pirates and by improving conditions in the country which foster piracy. The fund is managed by the United Nations Office on Drugs and Crime.

The piracy problem is bad and getting worse, sources say.

The average ransom paid to Somali pirates last year was $5.4 million compared with $150,000 in 2005, according to One Earth Future, a nongovernmental foundation based in Louisville, Colo.

Paying ransoms and insurance premiums, the costs of rerouting ships, purchasing security equipment and providing naval forces totals $7 billion to $12 billion per year, One Earth said.

Ole Wikborg, president of the Zurich-based International Union of Marine Insurance and director of the Bergen, Norway-based Norwegian Hull Club, said the piracy situation is worsening as the geographic area where pirates operate has expanded to include “almost every part of the Indian Ocean.”

“Anything that reduces the risk, we would encourage,” Mr. Wikborg said of the proposed convoy escort arrangement.

A record number of ships and crew were hijacked in 2010, most off the coast of Somalia, according to the London-based International Maritime Bureau. There were 53 vessels with 1,181 crew members taken last year, the highest number the IMB said it has seen.

Of the hijackings, 49 were off the coast of Somalia, the IMB said. At the end of 2010, 28 vessels and 638 hostages still were being held by Somali pirates.

As of mid-January, there had been at least four hijackings this year off the coast of Somalia with 83 crew members taken, according to the IMB.

Last week, South Korean naval forces stormed a ship held by Somali pirates, rescuing all 21 crew members. Eight of the pirates were killed and five were captured in the raid. The captain of the South Korean chemical tanker was wounded by the pirates, according to published reports.

While incidents off the coast of Somalia remain high, the number of attacks in the Gulf of Aden fell by more than half last year, to 53 from 117 in 2009. The IMB attributed the decline to the presence of navies that have been patrolling the area since 2008 and by better self-protection measures adopted by shipowners.

“The naval units in the seas off the Horn of Africa should be applauded for preventing a huge number of piracy attacks in the region,” Pottengal Mukundan, director of the IMB's Piracy Reporting Center, said in a statement. “The continued presence of international navies is vital in protecting merchant ships along these important trade routes.”

The Baltic & International Maritime Council, a Bagsværd, Denmark, shipowner association, is analyzing the Convoy Escort Program, said Giles Noakes, the group's London-based chief maritime security officer. It intends to support the effort as long as it is cost-neutral to shipowners, can provide funds to battle the piracy problem onshore in Somalia through the International Trust Fund, and it enhances existing military efforts in the Gulf of Aden, all of which appears to be the case, he said.

If the program is implemented, the presence of armed escorts off the coast of Somalia could free military resources there to patrol other waters, Mr. Noakes said.

“The aim is for the CEP to take over escorts in the Gulf of Aden so that naval warships can be relieved to move to the north Indian Ocean,” Mr. Noakes said.

Under the escort program, a patrol boat outfitted with weapons and carrying armed crew members will escort up to three merchant vessels through the Gulf of Aden. The JLT spokesman would not elaborate on the firepower that will be in place except to say that it will be “fit for purpose.”

“There will be plenty of warning before they engage anybody with firepower,” the spokesman said. “Training for the teams will be intensive and the rules of engagement will be made very clear by our legal team.”

JLT is structuring the program so it includes war risk insurance written by Lloyd's of London insurer Ascot Underwriting Ltd. to provide protection for a three-day transit through the gulf. The cost of the service for shipowners is expected to offset the expense of additional war-risk coverage and security that they incur, the spokesman said.

Any broker could access the program, he said.

JLT is working with Dobson Fleet Management Ltd., a Limassol, Cyprus-based company that will provide crews and a range of management services for the program. “They will operate the marine side,” the JLT spokesman said.

The program is being developed amid a longstanding debate over how much force should be used against pirates. Opponents of merchant vessels arming themselves argue that doing so increases the danger that someone will be killed or injured, but some ships have taken to carrying armed crews and insurers have begun providing coverage that will pay for liability connected to onboard armed security personnel.

An armed escort service should serve to cool the debate by removing the need for merchant ship crews to be armed, said Mr. Noakes. “It is reducing the risk of collateral damage.”

Some ships, though, may not see the need for a convoy if they are armed themselves, said Joseph J. Cox, president and CEO of the Chamber of Shippers of America in Washington. Some shipowners likely will weigh the cost of arming their own vessels against that of using the escort, he said.

“Will this idea go?” Mr. Cox asked. “Maybe. It depends on cost.”

That's not to say a private-industry effort to battle piracy is a bad idea, Mr. Cox said. “The industry has to start talking about what we can do for ourselves because the government can't do it all.”

Establishing the escort program has not been without opposition from many sides, the JLT spokesman said. “People opposed what they perceived as a commercial venture” in the role of a navy, he said, and expressed concerns about armed crews, rules of engagement and other aspects of the program.

Mr. Noakes said the escort program will be a far cry from a “private navy” as some had worried. “It's an international effort to help reduce the pirate problem,” he said.

Even if the program is implemented, substantial piracy risk will remain, sources agreed.

It is impossible to patrol the entire Indian Ocean, the JLT spokesman said. “So what we are hoping for is to at least help with the three days it takes to get through the Gulf of Aden.”

“It's too vast,” Mr. Wikborg said of the area where pirates operate. “It's my personal opinion that the whole problem emanates from the failed state of Somalia, and they need to sort that out before anything else.”