THINK TANK

In June 2013, the Lloyd’s Joint War Committee (JWC) expanded its Gulf of Guinea Listed Area – previously consisting of Nigerian and Beninese waters – to include Togolese waters north of 3˚N. This announcement came as little surprise.

Reported incidents of maritime crime and piracy off Togo rose 78% in 2012, compared to the previous year. During this period, hijack for cargo theft emerged as a particular threat to tankers in the region. Since April 2012, six tankers have been hijacked off Togo. Four of these had some of their cargoes stolen, while pirates attempted unsuccessfully to hijack a further ten.

The clear and rising threat to shipping off Togo over the last 15 months led many to anticipate the westerly expansion of the Gulf of Guinea Listed Area at the JWC’s meeting in March 2013. However, a fall in activity in the first quarter of the year delayed the JWC’s decision. A resumption of attacks since May led to the addition of Togo’s waters in June.

Empirical evidence of a heightened risk is imperative when listing an area as the JWC’s decision is likely to be heavily scrutinised (particularly by any affected states). Furthermore, the listing of an area can have serious implications for the shipping industry and thus such a decision is not taken lightly.

The Potential Impact on Shipping
Ship owners must gain their underwriter’s permission before their vessels can enter an area listed by the JWC. Underwriters may then amend cover terms before granting permission for vessels to enter the Listed Area, usually with an additional premium, or refuse to grant cover altogether.

Accordingly, the expansion of the Gulf of Guinea Listed Area has the potential to impact upon various aspects of tanker operations in West Africa. At worst, charterers may find that owners previously amenable to Togolese port calls withdraw their tonnage from the Bight of Benin market. Those owners that do sanction port visits to Lomé will face an additional war risk premium, as will the owners of vessels simply transiting Togolese waters. This includes much of the sizeable traffic exporting oil from Nigeria, particularly to Europe.

The nature of energy trading in West Africa means that tankers in the Gulf of Guinea are often engaged in ship to ship transfers within national EEZs. This includes Togolese waters, which enjoyed a rise in commercial activity as the threat of piracy grew to the East in 2011 and early 2012. However, the increased costs of additional war premiums could push this activity further west or offshore.

Meanwhile, owners and operators could suffer other complications as a result of the expansion of the Listed Area. The International Bargaining Forum defines high Risk Areas (HRA) in which crews are entitled to additional compensation. The IBF’s Gulf of Guinea HRA consists of the territorial waters, ports and inland waterways of Nigeria and Benin. Should a vessel enter these areas, crews are entitled to a bonus equal to basic wages payable for the duration of the stay/transit and double compensations for death and disability. Alternatively, crews have the right to refuse sailing, with repatriation at their employer’s cost. The IBF’s HRAs are strongly influenced by areas listed by the JWC. Thus an expansion of the JWC’s Gulf of Guinea Listed Area may well lead the IBF to expand its HRA to include Togolese waters, incurring further costs for owners and operators active in the region.

These additional costs are not limited to owners and operators. Rising costs are likely to push freight rates up, putting pressure on charterers. Thus the expansion of a Listed Area could possibly have deeper implications throughout the shipping industry.

The Significance of the Listed Area’s Expansion
However, despite the various cost implications described above, it is not clear that the extension of the Listed Area in the Gulf of Guinea will have anything more than a negligible impact upon tanker operations in the Gulf of Guinea.

Although maritime crime in the Gulf of Guinea clearly presents a significant risk to shipping, and tankers in particular, the threat is not always perceived to be as high as other areas, such as warzones (i.e. historically Iraq or Kuwait). Accordingly, by comparison, the additional premiums can often be relatively minor. Meanwhile, overcapacity among underwriters is also applying downward pressure on war risk premiums for the Gulf of Guinea Listed Area. Subsequently, brokers in the Lloyd’s market have indicated that the Listed Area’s expansion has had little impact on their clients. They added that recent events in Egypt have in fact refocused concerns back to East Africa as political unrest threatens the Suez Canal.

What is more, the small additional costs that war risk premiums place on owners and operators are generally passed on to third parties, beyond the shipping sector. Increased freight rates faced by charterers are often offloaded on to the consignee or end consumer, with little impact on the shipping industry.

The significance of adding Togolese waters to the Listed Area is also limited by their small size and location (i.e. adjacent to the prior-listed area). Much of the tonnage passing through Togolese waters is also active off Nigeria and Benin. The majority of West African maritime oil transport and support is operational in Nigerian waters, while any vessel transiting Togolese waters is also likely to enter neighbouring Beninese or Nigerian waters. Accordingly, much of West African shipping is already exposed to Listed Areas in the Gulf of Guinea and subject to the associated costs.

Of course, the addition of Togolese waters to the Gulf of Guinea Listed Area increases its size and thus the amount of time vessels are likely to spend within the area. However, in comparison to the prior-listed areas of the Gulf of Guinea, the additional waters of Togo’s EEZ are relatively minor in size. Thus their inclusion will likely result in negligible cost rises for vessels already active in Nigerian and Beninese waters.

Only vessels calling exclusively at Lomé are likely to experience a notable impact. However, this accounts for a fraction of Gulf of Guinea tanker traffic. Tankers operating in the Gulf of Guinea seldom call exclusively at particular ports. Many are utilised by traders to load and discharge cargoes according to the market and regional price differentials. These factors take far greater precedent in influencing tankers’ movements than additional premiums and crewing costs. Those tankers that do demonstrate simpler or more regular patterns of activity are likely to be employed shipping oil out of Nigeria, and thus already operating in the Gulf of Guinea Listed Area.

The Importance of Expanding the Listed Area
Although the implications for the shipping sector may not be substantial, the addition of Togolese waters to the Gulf of Guinea Listed Area serves to highlight the very serious threat of maritime crime and piracy in the area. On 13 June 2013, the tanker ADOUR was hijacked 7nm off Lomé and forcibly steamed to Nigeria. The following month, on 16 July 2013, pirates hijacked the tanker OCEAN CENTURION, 45 nm south east of Lomé. In both cases the pirates were unable to steal cargo from the vessels. However, these incidents indicate the continued threat of piracy off Togo.
By listing Togolese waters as high risk, the JWC raises awareness of the risks of operating in the area. This should encourage the shipping community to consider, with greater credence, safety measures that should be implemented prior to any voyage into a Listed Area. Additionally, by raising awareness of maritime security in specific areas, the JWC’s listing of areas may also encourage relevant states to endeavour to combat security threats in their water, or spur the international community to assist.

The Future of the Gulf of Guinea Listed Area
The threat of maritime crime and piracy in the Gulf of Guinea appears to be expanding. Late 2012 and early 2013 saw three incidents of hijack for cargo theft off the coast of Cote d’Ivoire. Although levels of pirate activity in Ivoirian waters have not matched those seen off Togo last year, this marks an ever expanding range of piratical operations.

Piracy also appears to be spreading south from Nigeria. Over the course of 2013, Nigerian pirates have evidenced an increasing operational range, culminating in the hijack of the tanker COTTON off Gabon earlier this month, nearly 300 nm from the Nigerian coast. This incident followed an attack against the tanker CAP THEODORA, 36 nm west of Principe, over 150 nm south of Nigeria, and the kidnap of four crewmembers from the container ship HANSA MARBURG, 105 nm south of Nigeria, in April. As the threat of maritime crime and piracy grows, further expansion of the Gulf of Guinea Listed Area remains a possibility.