Global Security, Privacy, & Risk Management

Armed Security; Increasing Competition & Decreasing Demand February 10, 2012

Recently I wrote about the armed security market and the inevitable shakeout.   A look at the most recently data supports this position and does not seem to fare well for the new entrants into the maritime security space.  As of February 1st, 2012 there are now 307 signatories of the ICOC with 55 signing on December 1st, 2011 and another 42 signing on February 1st, 2012.  While some of those signing are older, more established companies there is a large percentage of new entrants.  In short, competition is becoming fierce within the maritime security industry.

In January, 2012 the IMB released statistics on pirate attacks and hijackings.  From 2010-2011 pirate attacks in and around Somalia increased roughly 7.5% from 219 to 237 while at the same time hijackings decreased roughly 43% from 49 to 28.  In 2010 approximately 22% of the ships attacked were taken and hijacked while in 2011 the percentage dropped to just below 12%.  A combination of increased naval patrols, armed guards, and implementation of BMP is having a desired effect on hijackings.

There are several things that can be surmised from the information above.  First, competition within the maritime security industry is increasing rapidly.  With the wars winding down in Iraq and Afghanistan there is an increasing number of veterans entering the job market.  Some of these are founding security and maritime security companies to try take advantage of the perceived demand for the services.  This will have the effect of decreasing rates across the industry unless demand increases, as well.  The second thing that can be surmised is that demand for maritime security is likely to decrease significantly.  There are several reasons to anticipate a decrease.  As current efforts are showing success companies will logically begin to evaluate the need for expensive, armed guards when other controls may prove sufficient.  Additionally, it is expected that the number of ‘free riders’ will increase as companies begin to hedge their bets and forgo the use of security with the belief that other companies investment will have a residual affect on their security.  Finally, insurance rates should drop for ships traversing high-risk waters making the justification for the cost of engaging armed security more difficult.  As any first year economics student can attest; increasing competition and decreasing demand does not bode well for the industry.  Companies will have to drop their prices to compete for a rapidly decreasing pool of potential clients.  The end result is the inevitable shakeout of the industry.