Paying for Piracy

For ship owners negotiating the release of a hijacked ship, its crew and cargo, the actual ransom is just the beginning of what likely will be a much more expensive, drawn-out and complicated journey.

Perhaps no one knows that more than Scan-Trans Holding, whose 3,800-deadweight ton multipurpose vessel Amiya Scan was held for 30 days after being kidnapped off the Somali coast last May.

The initial ransom demand — $3 million — was negotiated down to $1 million.

But by the time the ship, which was carrying a knockdown oil rig and a crew of four Russians and five Filipinos, was returned, Scan-Trans had spent $5 million.

The logistics of the recovery is straight out of Hollywood.

The ransom money itself, which had to be in notes smaller than $100 — pirates are wary of larger bills because they are often counterfeited — weighed some 48 kilos, said Lars Juhl, managing director and partner with Scan-Trans. The company had to hire a plane, smuggle the money into Nairobi with armed guards and get it onto a tug for delivery to the pirates.

All of this took 10 days. Meanwhile, the Amiya Scan almost ran out of fuel.

“We had the risk of a blackout ship,” Juhl said, recalling the adventure at the The Journal of Commerce’s 4th Annual Breakbulk Europe Conference in Antwerp last week.

Ultimately, a German frigate came alongside and assisted — but not until after trying to claim salvage. The carrier has not received a penny from insurance, Juhl said. Scan-Trans believed it had arranged piracy insurance coverage, but when the attack occurred the reality was otherwise. Hull underwriters said they were not liable because there was no damage to the Amiya Scan’s hull or engine.

And war underwriters said the use of weapons for commercial gain was not an act of war — and therefore, they were not liable, either. Because the owners put up the ransom money, the crew insurance did not cover the ransom, according to crew P&I underwriters. A fundamental issue, said Juergen Hahn, a Sworn Average Adjuster with Stichling Hahn Hilbirch, is “we are starting all over now with something we left 250 years ago. The concept is simple: (Piracy) is a peril of the sea. It’s been around as long as shipping had been.”