What is a Piracy Risk Surcharge (PRS)?
A study by One Earth Future Foundation showed that Sea piracy costs the global economy about $12 billion a year, with ocean carriers having to pay increased premiums for voyages through piracy-prone areas. Therefore, ocean carriers are forced to pass these costs on in form of a surcharge.
A Piracy Risk Surcharge (PRS) is a fee that is imposed by the carrier to cargo owners, in order to offset increased insurance premiums for vessels that pass through areas that are prone to piracy. This surcharge is also used to fund anti-piracy programs against hijacking and kidnapping, as well as account for added security measures on vessels.
Incidences of sea piracy have been particularly prominent in the Gulf of Guinea and the Gulf of Aden, as well as its surrounding areas such as Somalia, Yemen, and Djibouti. In this article, we’ll be taking a closer look at topics revolving around sea piracy and how carriers charge the Piracy Risk Surcharge.
How Much is a Piracy Risk Surcharge?
As insurance premiums can vary depending on the route, overall situation, and insurer, ocean carriers assess risk and determine the Piracy Risk Surcharge independently. The average Piracy Risk Surcharge is about $100 – $200 per FEU.
However, it is not uncommon for these surcharges to increase drastically for waters that are more prone to piracy. Carriers typically make their rates available online, or when quoting sea freight rates.
Why is a Piracy Risk Surcharge Imposed By Carriers?
There are several reasons why shipping lines impose a Piracy Risk Surcharge. The main reasons why these surcharges are passed on to the cargo owners is to offset the increased insurance premiums for their vessels, the added security required on board, the higher fuel costs due to increased vessel speed, and also the increased crew salaries.
Areas Where Carriers Are Prone to Sea Piracy
Ocean carriers regularly optimize shipping routes based on transit time and operating costs. They typically avoid vessel routes through piracy-prone areas, unless absolutely necessary. Below are some of the areas where vessels are vulnerable to sea piracy.
- Gulf of Aden: Perhaps one of the busiest service routes as it eventually leads to the Suez Canal. The Gulf of Aden is home to many Somalian pirates partly due to poverty in the nation. Kidnapping for ransom and hijacking are the main problems, which have also been depicted in the movie Captain Phillips with the hijacking of Maersk Alabama. Carriers with vessels passing through this channel often impose a Gulf of Aden Surcharge.
- Gulf of Guinea: Stretching from Senegal to Angola, sea piracy has been on the rise in these waters, and pirates are known to be more violent. The Gulf of Guinea accounted for 43% of all sea piracy globally and pirates are equipped to attack even from shorelines.
- Somalia: Incidents of piracy are common in Somalia due to extreme poverty and lack of governance. There are reported and yet-to-be-proven cases where Somalians resort to piracy as a protest against overfishing and the dumping of waste.
- Benin: Kidnapping for ransom is the main piracy activity in the waters of Benin. This is becoming a problem because of stretched Naval resources in protecting the area. There are more than a dozen piracy cases recorded annually.
- Nigeria: Due to high unemployment and underdevelopment, piracy has led to sources of income for some people. Foreign navies from France, Spain, and Italy patrol these areas regularly with the aim of protecting cargo vessels.
- South China Sea: Current reports indicate a heavy presence of Indonesian sea pirates who roam these rough seas. Recorded incidents are armed robberies and hostage-taking.
- Indonesia: Indonesia has no anti-piracy laws. Those who are guilty of piracy are prosecuted under the criminal code and often the penalties tend to be lenient. Over the last few years, there have been more than 25 cases of sea piracy annually, with a peak of 108 recorded cases in 2015.
- Malacca Straits: One of the busiest gateways of cargo from Southeast Asia, the Malacca Straits sees a total of 60 piracy incidents per year. Joint patrols between Singapore, Malaysia, and Indonesia coordinate and share intelligence to combat piracy.
- Indian Ocean: Since the Indian Ocean is vast and a large number of vessels pass through, protection agencies are struggling with keeping these waters safe, without the help of navies. 2017 saw 115 cases of piracy alone, with a peak of 392 cases in 2010.
- Arabian Sea: Like the Indian Ocean and the Gulf of Aden, the Arabian Sea is another area with a high risk of sea piracy. Kidnapping for ransom and hijacking are among the common activities of sea pirates. The European Union and NATO are leading to address this issue.
Co-Founder & Writer
About the Author
Gerrit is a certified international supply chain management professional with 15 years of industry experience, having worked for one of the largest global freight forwarders.
As the co-founder of freightcourse, he’s committed to his passion for serving as a source of education and information on various supply chain topics.