Escalation in piracy places supply chain under pressure

The global supply chain, now dealing with disruptions due to the Libyan conflict and Japan’s post-disaster rebuilding, faces an on-going challenge that seems to be getting worse: piracy.

Otherwise simply known as “terrorism,” ocean piracy has hit an all-time high in the first three months of 2011, with 142 attacks worldwide, spokesmen for International Maritime Bureau’s (IMB) said today.

“Figures for piracy and armed robbery at sea in the past three months are higher than we’ve ever recorded in the first quarter of any past year,” said Pottengal Mukundan, Director of IMB, whose Piracy Reporting Center has monitored piracy worldwide since 1991.

The sharp rise was driven by a surge in piracy off the coast of Somalia, where 97 attacks were recorded in the first quarter of 2011, up from 35 in the same period last year.

Worldwide in the first quarter of 2011, 18 vessels were hijacked, 344 crew members were taken hostage, and six were kidnapped, IMB reported. A further 45 vessels were boarded, and 45 more reported being fired upon.

Apart from the toll this is taking on human life, the supply chain is further complicated by the impact this is having on two major cost centers: energy and insurance.

Large tankers carrying oil and other flammable chemicals are particularly vulnerable to firearm attack. Captain Mukundan said.

“Three big tankers of over 100,000 tons deadweight have been hijacked off the Horn of Africa this year. Of a total of 97 vessels attacked in the region, 37 were tankers and of these, 20 had a deadweight of more than 100,000 tons.”

This comes at a time when oil and the U.S. diesel fuel markets are already under severe pressure.

“Whenever oil starts trading over $100 a barrel, supply-chain managers experience fibrillations,” said Jock O’Connell, an analyst with Beacon Economics. “Unfortunately, that’s where prices are right now.”

Meanwhile, Maersk Line – the world’s largest shipping company – announced that piracy risk surcharges imposed earlier on containers moving between the Indian subcontinent, the Middle East, Europe and Central/South America, will be hiked starting May 1.

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