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Ship Operators, Insurers Nervous Over Pirate Woes

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Ship Operators, Insurers Nervous Over Pirate Woes

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Ship Operators, Insurers Nervous Over Pirate Woes

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  • <iframe src="https://www.npr.org/player/embed/103054546/103054532" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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ROBERT SIEGEL, host:

The successful rescue of Captain Richard Phillips from the hands of Somali pirates continued to reverberate today. Some pirate leaders are warning that they will take revenge on other American ships. And President Obama said the U.S. is resolved to confront the pirates, and make sure that they are held accountable for their crimes.

All this has ship owners and the companies that insure them worried, as NPR's Tom Gjelten reports.

TOM GJELTEN: Ship operators and their insurance providers, like everyone else, intently followed the story of how Captain Philips was rescued from his pirate captors. But one line in Vice Admiral William Gortney's account especially caught the attention of people in the shipping industry.

Vice Admiral WILLIAM GORTNEY (United States Navy): This could escalate violence in this part of the world, no question about it.

GJELTEN: Piracy had already been on the increase off the east coast of Africa. Generally, ship owners or their insurance companies have paid million-dollar ransoms to get the crews and their cargo freed, but the consequence has been higher insurance premiums.

Now, in the aftermath of three pirates being shot dead, the pirates' leaders say they'll be even more aggressive. Paul Bingham follows the shipping industry for IHS Global Insight, an economic intelligence firm. He says shippers have reason to feel nervous today.

Mr. PAUL BINGHAM (IHS Global Insight): I think there's a lot of apprehension in terms what it's going to do to either their cost of delivery of their goods, or perhaps the reliability of the service in providing it.

GJELTEN: If insurance rates are too high and the risk of pirate attacks too great, Bingham says, shipping lines will change their routes, avoiding the Suez Canal and the Gulf of Aden and taking their cargo all the way around the Cape of Good Hope. But the longer ships are at sea, the greater the shipping costs.

In the shipping business, piracy is an economic problem. But up to now, neither the big shipping lines nor the insurance carriers have argued loudly for aggressive military actions of the sort carried out yesterday by the U.S. Navy. In most cases, when ships are hijacked, shipping companies just negotiate with the pirates, says Bingham.

Mr. BINGHAM: The ransom gets paid to resolve the situation. It becomes a cost of doing business.

GJELTEN: One London-based attorney who represents maritime insurance underwriters and ship owners told NPR today that his clients are generally uneasy with the idea of commando actions against pirates. He asked not to be identified by name because of the sensitivity of the issue.

If a military action fails, he says, there could be a catastrophic shipping loss, and that could well be greater than the more modest cost of paying a ransom. Paul Bingham of Global Insight says one important factor is whether ship owners or insurance carriers are feeling patient. The rescue of Captain Philips, he points out, unfolded relatively quickly.

Mr. BINGHAM: If this had gone on for a month, I think perhaps a shipper would have said well, let's just pay the ransom, and get me my cargo. This is starting to cost me money.

GJELTEN: There is one other issue that could come into play. Captain Philips' ship, the Maersk Alabama, was a U.S.-flagged ship with an American captain, an American crew and American cargo. Far more typical is the case where a ship flies the flag of one country but has an owner from a different country and an international crew. In that situation, shipping experts say, a military intervention is less likely because no single government feels its interests are at stake. Tom Gjelten, NPR News, Washington.

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