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Superyacht Industry Ponders Somali Piracy Menace

Tom Burroughes

30 March 2012

There has been a recent decline in the number of piracy attacks on vessels in the Indian Ocean but the risks are still high and more needs to be done to combat it, a high-ranking naval officer told people working with the luxury yacht industry yesterday.

Some 27 vessels of all types were hijacked last year and a total of 538 hostages were taken in 2011, and several attacks have happened since January. Between 2007 and last year, a total of 3,580 seafarers have been taken hostage; 78 seafarers have died in that time, the Superyacht Security Summit 2012, held in London, heard.

Some forms of cruise-line shipping business in the western parts of the Indian Ocean around Mombasa, for example, have almost completely dried up as a result of piracy, although other forms of traffic have not appreciably slowed, Commander Conleth Burns of the Royal Navy, told the conference.

Cdr. Burns works in the area of counter-piracy, part of efforts to combat the menace through EUNAVFOR Somalia, a European Union force.

His comments highlight how high net worth and ultra high net worth individuals, such as owners of large maritime vessels, have complex security and personal protection needs. The business of protecting such persons is now a significant industry in its own right and an important issue for wealth management services. (To view an example of how security business is developing, click here.)

One issue is trying to persuade private yacht enthusiasts to avoid danger, Cdr. Burns said. “It is very difficult to engage with and very difficult to persuade them that this is a hazardous activity,” he said. On the other hand, with “superyachts” - defined as vessels of 30 meters or more in length – risks of attacks on such fast-moving, heavily protected craft were less serious, he said.

The focus on security, particularly piracy and armed robberies in the Indian Ocean, is a sobering jolt to a luxury yacht sector hoping to cash in on the burgeoning wealth of the Middle East and Asia-Pacific, where trophy assets such as these vessels are on the shopping lists of ultra high net worth clients. The very fact that a conference devoted to the subject of piracy was held at all shows that some in the superyacht sector are concerned, while others may see it as an opportunity to sell protection services.

The stakes, for the sector as a whole, as well as for individuals, are large. The superyacht sector contributed €24 billion ($32 billion) to the global economy in 2010; there are more than 6,000 companies operating in the sector, and more than 33,000 crew work on these vessels (source: The Superyacht Report, February 2012). Geographically, the largest country for businesses, in percentage terms, is the US (19.6 per cent), followed by Italy (10.9 per cent) and the UK (8.9 per cent). The average yacht, with a length of 40.3 meters and built in Europe, has a crew of eight people costing €444,000 per year, and the annual cost of running such a vessel, excluding crew and berthage, is €1.65 million. There are currently more yards than ever before building yachts – a record 209 boatyards in construction phase, according to the 2012 Global Order Book published last month by The Superyacht Group.

While not easy to quantify, some estimates of the costs of piracy put it at up to $12 billion a year, with some of the costs caused by ship-owners diverting vessels away from the most dangerous areas, thereby incurring higher fuel costs and slower delivery times.

Security vetting, insurance

A number of delegates at yesterday’s conference were from security firms and insurance businesses grappling with the upsurge in seaborne piracy. Paul Miller, director of underwriting, R&Q Marine Services, said there are, currently, odds of 800-1 of being attacked in the case of a £100 million vessel, but the risk falls considerably if a vessel employs countermeasures.

One problem, at a time when there are an estimated 230 security firms trying to pitch for business in this sector, is vetting such businesses to ensure they come up to scratch and have the necessary skills and training, Adrian McCourt, managing director, Watkins Superyachts and head of risk management at Watkins Syndicate, told the same conference.

Standards of training and professionalism have improved and even local Somalis are now used as security on some vessels as they have the local knowledge to guide ships out of trouble and aid in counter-piracy measures, he said.

The issue of piracy has been concerning the industry for last time. At last year's conference, Richard Fenning, of Control Risks, was quoted as saying: “We live in an age where media reporting of events including piracy would lead us to believe that we are all vulnerable all of the time. We are not, but this is a serious and persistent crime.”

A number of firms, including technology businesses, were advertising their wares at the event, highlighting the business opportunity presented by the threat of piracy. Among the firms were Lasersec Systems; Servowatch; Special Projects and Services and Vector Developments.