The Impact of Piracy on Shipping Industry - Research Proposal Example

Research Proposal Is the Shipping Industry in the United Kingdom Paying a Heavy Price Due to the Piracy off the Coast of Somalia and in the Gulf of Aden? Title Is the Shipping Industry in the United Kingdom Paying a Heavy Price Due to the Piracy off the coast of Somalia and in the Gulf of Aden? Purpose The purposes of this research is to establish Whether piracy off the coast of Somalia and in the Gulf of Aden has resulted in increased costs to the shipping industry in the United Kingdom for the movement of maritime goods. The extent of this increased costs and the nature of these increased costs. This hypothesis of this study is that piracy off the coast of Somalia and in the Gulf of Aden is costing the shipping industry in the United Kingdom heavily in the movement of maritime goods. Background Piracy is not a new phenomenon, but has been in existence from the time mankind has used ships and the seas as a means to transport goods. Increase in the frequency of piracy events, the escalating value of goods lost to piracy, and the ease with which piracy is occurring particularly off the East coast of Somalia and in the Gulf of Aden in the recent past has caused concern worldwide (Nath, 2008). Most of the increase in the frequency and the severity of piracy can be easily apportioned to the enhanced piracy off the East coast of Somalia and in the Gulf of Aden. During the third quarter of 2008, piracy off the East coast of Somalia and in the Gulf of Aden was responsible for the hijacking of 26 shipping vessels with the 537 crew members on board these ships taken as hostage. In addition another 21 shipping vessels were fired upon. The East coast of Somalia and the Gulf Aden has become the most dangerous zone for piracy, with this zone responsible for nearly one third of all reported piracy attacks (ICC Commercial Crime Services, 2008). According to the Director of the International Maritime Bureau (IMB), Captain Mukundan, “the number of piracy attacks off the coast of Somalia is unprecedented. Pirates in the Gulf of Aden are growing increasingly brazen, attacking vessels, including tanker and large bulk carriers, with impunity.” (ICC Commercial Crime Services, 2008). The trade route around the Horn of Africa is an important trade route with a number of shipping vessels plying on this route. This shipping route is important to the countries in Europe, as more than eighty percent of the maritime trade occurring on this route is with the countries of Europe (Maritime Administration, 2008). Significance Frequency of piracy attacks along the East Coast of Somalia and the Gulf of Aden has enhanced to a very large extent. This is likely to have an economic impact on maritime trade from the United Kingdom as it is a part of Europe, which contributes to a very large part of the commercial shipping that occurs in this region. This study will contribute to enhancing the body of knowledge on ascertaining whether there is an increase in shipping costs from and to the United Kingdom through this piracy threatened zone. It will also assist in ascertaining the volume of increase in costs and the sources of these costs. Description The research will consist of a literature review involving a search for relevant material in the locally available libraries and the Internet. This exercise will provide an understanding of what is known on the topic and form the basis for a structured interview using a structured closed questionnaire with shipping companies to provide the relevant data for the study. The study will also collect information on data sheets regarding the extra expenses incurred fie to steps taken by the shipping the companies to prevent piracy on their shipping vessels. . Literature Review A single universally accepted definition for piracy still remains illusive. The IMB however defines piracy as “An act of boarding or attempting to board any ship with the intent to commit theft or any other crime and with the intent or capability to use force in the furtherance of that act” (Petretto 2008, p.3). From this definition it becomes clear that piracy is essentially an act with the objective of economic gain. Busy sea routes like the East Coast of Somalia and the Gulf of Aden around the Horn of Africa are targeted by pirates because of the large number of commercial shipping vessels plying through the route. In addition the geography of the region offering choke points and continuing state of disorder in Somalia make this region susceptible to acts of piracy (Petretto, 2008). Pirates from Somali are an example of criminals that thrive on community support and employ criminal means to gain power and wealth. A quasi-political element is associated with their actions, with no strong political authority in Somalia. Seventeen years of unending conflict in Somalia has led to a situation where nearly half the population is dependent on food aid for sustenance. This has made piracy fashionable and socially acceptable in Somalia. This makes modern piracy off the East coast of Somalia and in the Gulf of Aden poses a definite threat to maritime security and a menace to international trade and commerce (Bigenon, 2009). Piracy attacks on shipping vessels carrying commercial goods and going through the Gulf of Aden and have increased drastically in 2008. In 2008 there were 140 piracy attempts in this region and a reported minimum of thirty-nine shipping vessels detained by the pirates. Besides the economic damage of these attacks, there is also the trauma experienced by the officers and crew of these vessels and their family members (Oil Companies International Marine Forum, 2009). Maritime piracy off the East coast of Somalia and in the Gulf of Aden gives greater cause for concern taking into consideration the global recession that is being experienced and the volume of goods that are sent by sea. Every year more than 6.8 billion tons of goods transit the sea routes accounting for a global trade cycle of $7.4 trillion. The enhanced piracy attacks off the East coast of Somalia and in the Gulf of Aden have resulted in a change in the pattern of global shipping. An example can be seen in the action of AP Moller-Maersk, which is the largest shipping company in Europe. AP Moller-Maersk has diverted its fleet of fifty oil tankers away from the East Coast of Somalia and the Gulf and Aden and through the Suez Canal to avoid piracy attacks on its oil tankers. The impact of piracy in this region on European shipping companies is that pay a heavy price in terms of excess fuel costs, increased payroll costs and higher insurance premium (Bigenon, 2009). Shipping companies are faced with two options in the face of enhanced piracy off the East coast of Somalia and the in the Gulf of Aden. They can either reroute their vessels via the Cape of Good Hope or continue accepting the risks involved in plying their vessels through this region and the Suez Canal. Both have their financial implications. Diverting a ship via the Cape of Good Hope increases the voyage distance. For example for a shipping vessel plying between Saudi Arabia and the United States of America the increase in voyage distance is about 2,700 miles and the additional fuel costs work out to about $3.5 million. Plying shipping vessels through this region and the Suez Canal brings in additional costs in terms of insurance premiums and payroll costs. Table -1 below gives a comparison of additional estimated costs (Maritime Administration. 2009) Table – 1 Additional Costs Estimates Summary Category Via Suez Via Good Hope War Risk Insurance $20,000 NA Suez Canal Toll $200,000 NA Crew Cost (while in Maritime Security Patrol Area only) 2x basic rate NA 5,000 TEU Containership Charter Hire per day 0 $40,000 5,000 TEU Containership Fuel per day 0 $125,000 300,000 DWT VLCC Charter Hire per day 0 $48,000 300,000 DWT VLCC Charter Fuel per day 0 $47,500 Licensed Security Guard for voyage through the Gulf of Aden $60,000 Some deterrent equipment and operators per trip $20,000 to $30,000 (Maritime Administration. 2009) Methodology The first part of the study consists of a literature review. As mentioned earlier articles for the literature review will be sourced through the local libraries and the Internet. The inclusion criteria will be relevant articles published in the last two years. Articles published prior to 2007 will be excluded. The information from the collected through the literature review will form the basis of the structured closed questionnaire and the data collection sheets. Ten shipping companies in the United Kingdom are intended to be used as samples in this study. Shipping companies will be approached to participate in the studies and ten suitable shipping companies having shipping operations passing through the Suez Canal will be selected as participants. The questionnaires will be applied to the operation managers in these ten shipping companies. In addition the operational records and cost implications in the shipping operations brought about by through preventive measures adopted due to piracy in off the East Cost of Somalia and in the Gulf of Aden will be scrutinized and the relevant data collected in the data on the data sheets. Data collected through the questionnaires and the data collection sheets will be collated. Suitable statistical analysis programs will be applied to the data collected to yield the results. Statistical analysis using ANOVA and t-tests for correlation are expected to be employed. The author acknowledges a deficit in statistical expertise. To overcome this deficit assistance from appropriate statistical professionals will be sought to aid in the developing the results of the study. Time Scale Gantt Chart Task Duration in Months Aug 2009 Sep 2009 Oct 2009 Nov 2009 Dec 2009 Jan 2010 Feb 2010 Mar 2010 Collecting Material for Literature review and Preparation of Literature Review 02 ------- ------- Preparation of Questionnaire & Data Sheets and Recruiting of Participant Companies 02 ------- ------- Applying Questionnaire and Collecting Data on Data Sheets 02 ------- ------- Collating Data, Statistical Analysis and Preparation of Study Report 02 ------- ------- Anticipated Problems Two problems are anticipated. The first is the willingness of the shipping companies to participate in a study that will examine their operational strategies threadbare. The second problem is that the companies may choose to participate, but will not divulge all the relevant and required information. The study hopes to overcome these problems by taking appropriate steps to safeguard information received from the participant companies and convince the shipping companies that these steps will ensure confidentiality of any information provided to the study. Literary References Bigenon, R. 2009, ‘Somali Piracy and the International Response’, Foreign Policy in Focus [Online] Available at: http://www.fpif.org/fpiftxt/5827 (Accessed March 4, 2009). ICC Commercial Crime Services. 2008, ‘Unprecedented rise in piratical attacks’, [Online] Available at: http://www.icc-ccs.org//index.php?option=com_content&view=article&id=306:unprecedented-rise-in-piratical-attacks&catid=60:news&Itemid=51 (Accessed March 4, 2009). Maritime Administration. 2009, ‘Economic Impact of Piracy in the Gulf of Aden on Global Trade’, Department of Transportation, United Sates of America [Online] Available at: http://www.marad.dot.gov/documents/HOA_Economic%20Impact%20of%20Piracy.pdf (Accessed March 4, 2009). Nath, L. 2008, ‘Piracy and Terrorism at Sea’, Mainstream, vol.47, no.1 [Online] Available at: http://www.mainstreamweekly.net/article1095.html (Accessed March 4, 2009). Oil Companies International Marine Forum. 2009, ‘Piracy: The East Africa/Somalia Situation – Practical Measures to Avoid, Deter or Delay Piracy Attacks’, Witherby Seamanship International Ltd., Edinburgh [Online] Available at: http://www.marad.dot.gov/documents/HOA_OCIMF_piracy_web.pdf (Accessed March 4, 2009). Petretto, K. 2008, ‘WEAK STATES OFF-SHORE – PIRACY IN MODERN TIMES’, Discussion Paper, East African Human Security Forum, March 2008, Hans Siedel Foundation, Kenya [Online] Available at: http://www.hss.or.ke/documents/Piracy.pdf (Accessed March 4, 2009). Read More