A Shipping Play With A Pirate Kicker

Last week, for the sixth time in about a week, pirates hijacked a ship off the coast of Somalia. More accurately, the ship was WAY off the coast of Somalia, roughly 300 miles. This was the first time that an American flagged ship was hijacked, but not the first time the hijacking took place so far off shore.

The following map depicts pirate activity in 2008 and 2009.

The red lines represent the traditional shipping lanes through the region. The orange highlights illustrate where the majority of the hijackings have taken place during 2008 and 2009. The difference is clear; the pirates have found the shipping lanes to be more lucrative and harder for naval vessels to patrol. Reportedly, the pirates have used previously hijacked fishing vessels as “mother ships” that launch skiffs to attack passing traffic.

The blue line in the map depicts the proposed new shipping lane, which is intended to avoid the islands that dot the east African coast. To date, this new lane has not been used because it takes longer and costs more. And despite sensational news reports, hijackings are still relatively rare in relation to the volume of shipping traffic.

However, 2009 may be different since piracy has increased and insurance companies have been rumored to be lowering rates for ships that avoid Somalia. This could benefit World Fuel Services (INT) and Aegean Marine Petroleum (ANW).

Both of these companies operate the “gas stations” that refuel the shipping industry. Profits come from the volume of fuel they sell, not the price. If insurance companies require ship owners to travel the new routes they will burn more fuel. The result could be more fuel sold at the “local” filling station.

Disclosure: I am long INT

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