Mumbai: In a move that could potentially lower the insurance and operating costs of Indian shipping companies, international shipping regulators have revised down the so-called high-risk area effective 1 December.
“European Union Chair of the Contact Group of Piracy off the Coast of Somalia (CGPCS) today, 8 October 2015, announced the revision of the limits of the piracy high risk area (HRA) with effect from 1 December 2015,” the ministry of defence said in a statement on Friday.
The expanded HRA had covered almost all of India’s western coast, and had triggered a 300-fold jump in ship insurance costs, leading to rise in the transaction cost of commodities shipped to Indian ports.
About 90% by volume and 70% by value of the country’s international trade takes place through ocean transportation. The country’s major ports play a key role in facilitating external trade, which accounts for 40% of India’s gross domestic product (GDP).
Indian shipping regulators and defence forces were lobbying to redraw the eastern limit of the HRA since 2012 as piracy at sea dropped to its lowest levels in six years in 2014.
The HRA was extended in 2010 beyond the earlier boundary of 65 degrees East longitude to up to 78 degrees East, stretching right up to the territorial waters on India’s western shores. Consequently, London’s joint war committee (JWC), which assesses insurance risks, extended the war zone in December 2010 about 900 miles east as the hijacking range grew.
JWC comprises underwriters from the Lloyd’s Market Association (LMA) and the International Underwriting Association (IUA).
The decision was taken after pirate attacks started taking place further from the Somali coast and closer to India than in the past as pirates deployed long-range ships to attack and hold ships for ransom.
The expansion of the area effectively brought the whole of the Indian Ocean, almost up to the coast of India, into a so-called exclusion zone, raising shipping costs.
The extension meant that this area was excluded from the annual war risk cover, and underwriters demanded additional premiums from shipowners to provide a cover for the area.
A ship with appropriate war risk insurance is covered for risks encountered throughout the course of its normal operations.
In addition to deployment of Indian naval ships in the Gulf of Aden since October 2008 for anti-piracy patrols, robust action by the Indian Navy and Indian Coast Guard led to the arrest of 120 pirates from four pirate ships between January 2011 and March 2011.
Affirmative action and increased surveillance contributed towards the decline of piracy incidents in the East Arabian Sea, with the last pirate activity in the region reported in March 2012, the ministry of defence said in its statement on Friday.
“The absence of piracy in the Indian maritime zones and adjacent seas, the security concerns and financial implications of an extended HRA led to India seeking a review of the HRA, with the support of numerous countries,” it said.
With the revision of the HRA, the defence ministry said some of India’s maritime security concerns such as floating armouries and proliferation of private security are likely to be addressed.
“In addition, Indian ship owners are likely to benefit significantly on account of savings on insurance and associated operating costs,” the ministry said, without elaborating.
Anil Devli, chief executive officer of the Indian Shipowners’ Association of India (INSA), at lobby group of local ship owners, said Indian shipowners had paid around $125 million to $130 million towards addition war risk premium in the last financial year.
To be sure, some of the portion of this additional war risk premium will remain, but substantial portion of the premium will go way with the downwards reduction.
Devli said this decision will also help avoiding the clash of fisher man and merchant vessels as fisher man can now go to deeper seas.
“All types of vessels were hugging to the Indian coast owing to expansion of this area. With the latest downwards division, it will be easy for defence forces to check attacks from terrorist via coastal route as there will be less congestion after December,” Devli added.