Security Issues Impacting the Supply Chain

By David Bennett
vice president, Global Logistics Sales, Schneider Logistics International

Modern day piracy
Over the Easter weekend, we watched the news carefully as events unfolded from the hijacking of the Maersk Alabama. The actions taken by Capt. Richard Phillips to ensure the safety of the 18 crew members can only be described as heroic. I am quite confident that everyone following this event was very relieved to learn that Capt. Phillips was rescued by a branch of the finest military in the world, the United States Navy.

Over the years, I have been monitoring the activity off the Somali coast in the vast waters of the Indian Ocean. The number of attacks off the Horn of Africa, a key route for ocean transportation, have continued to grow on a yearly basis. As I prepared for this month’s column, I found myself in a discussion with colleagues at Schneider Logistics over the impact this would have on global supply chains and the consequences of ignoring this issue over the last several years.

In a recent report by Robyn Hunter of the BBC News, a local resident of Garowe, a regional capital in Somalia, was quoted as saying, “Piracy in many ways is socially acceptable. (Pirates) have become fashionable, they wed the most beautiful girls, have the biggest houses, new cars and new guns. They have power and are getting stronger by the day.”

Recent activity
While one might conclude that learning of the United States Navy sharpshooters taking the lives of three pirates holding Capt. Phillips hostage would deter future behavior, my guess is that it will take more than this to deliver the message that piracy will no longer be tolerated. After all, when you are struggling with extreme poverty, and when an average ransom per vessel is $1 million, the risk analysis is far different than in this part of the world.

Even with warships from over a dozen NATO nations patrolling the Gulf of Aden and Indian Ocean, hijacking activities have been significant. Seventy-eight ships have been attacked and 19 have been hijacked, with 16 vessels and 300 hostages held for ransom. According to the Somalian embassy in Washington, more than $150 million was estimated to have been paid in ransom to pirates in 2008.

One day after the U.S. Navy rescued Capt. Phillips, the French Navy intercepted a pirate “mother” ship and detained 11 pirates who were about to attack another vessel in the region. Pirates with rocket-propelled grenades launched another attack on a U.S. flagged cargo ship, the Liberty Sun, but were headed off by a U.S. Naval escort.

The pirates have threatened to “slaughter Americans.” This problem is not going away without significant changes in world policies and it is time action is taken to restore order to this key route in global trade.

Consequences?
Over the last several years, I have warned various industry groups that complacency on key issues impacting supply chains would have significant costs attached to the flow of goods. We can no longer avoid the issue of piracy and we can no longer expect vessel operators to absorb the burden of moving goods via this key route. If swift action is not taken immediately, new costs will be passed through the supply chain, such as:

• Higher marine insurance premiums.

• Extreme security costs — we cannot have naval forces from over a dozen nations monitoring these regions without significant costs to consumers.

• Carriers will abandon this route, despite its significant advantages, forcing the shift to routes with longer transit times and more expensive operating costs.

These are just three examples of higher costs associated with piracy. My kids pointed out that pirates (specifically Capt. Hook!) were supposed to be cartoon characters; but as we watched this story unfold, I explained to them that this was all too real.
As an industry, we have allowed this to go on too long. Absent an effective response to piracy, costs will have to be inflicted upon the shipping community and will drive supply chain realignment decisions and the higher costs associated with those decisions.

In This Issue

News, Trends & Analysis
New Items

Don’t Get Carried Away

Supply Chain
So, how much is this worth, anyway?

Compliance Corner:
Service Providers and Trade Compliance Freight Forwarders need apply!

Five things you should know about auto and logistics software

Distorted Web Sites

Supply Chain product review
Security Software Solutions

Features
Gateway at a Glance Gulf Coast

Supply Security Investments: A Balancing Act

Ports & infrastructure
Major retailer to Southern Cal ports: Requirements are many, costs are high

Port Product Review
Security Equipment

Commentary
Security Issues Impacting the Supply Chain

Who, What, Where, When

Final Say