Here’s the question – who pays for the protection afforded to private companies engaged in protecting America’s critical assets? The answer is: it depends.
Chemical plants, nuclear power plants, airlines, telecommunications companies, transportation companies, you name it – most of the costs associated with protecting private companies are borne by the companies, their shareholders and when possible, their customers. With a glaring exception – if you are a foreign shipping company and one of your ships transits the Gulf of Aden and is hijacked by four criminals intent on gaining ransom money – the US Navy and insurance companies are happy to pick up the tab for the rescue and protection of the crew, the ship and its cargo.
One might think this is a justifiable national security response because the shipping company is threatened from conducting its operations. However, these pirates are common criminals, not terrorists and the shipping companies are choosing to undertake the risk but not take appropriate measures to prevent the hijackings because they can rely on the US and other navies for protection – at the cost of the US taxpayer. So the US taxpayer is not only burdened with failed management of US financial institutions and auto makers, along with irresponsible credit card and mortgage holders, but now we’re subsidizing foreign companies who refuse to implement solutions to minimize or avoid the risk to their ships and their clients’ cargo.
Which brings forth the question, why are shippers deferring to the navies of the world? The easy answer is the US Navy isn’t going to charge the shipping companies. However, there is more – the shippers, as a group, have failed to grasp the reputation benefits associated with improved security, reduced risk and better service. Some companies do understand the value of protecting their reputation – contrast Dry Ships Inc. (NASDAQ:DRYS) vs. Diana Shipping Inc. (NYSE:DSX). Since experiencing a hijacking in February 2009 Dry Ships Inc., the company’s reputation as measured by the Steel City Re IA index has tumbled from the 80th percentile to 36th percentile, based on the market’s perception that they are not managing security issues well. Diana by contrast has gained on the Steel City Re reputation index moving from the 30th percentile to the 80th. Click here to see the charts on the Intangible Asset Finance Society blog, MISSION:INTANGIBLE
Diana has out performed its peers by 24% while Dry Shipping has under performed by 18%. Why do these percentages matter? Because they demonstrate the value of good security programs, their recognition by the markets and the impact on their shareholder value.
This is something our government needs to underscore with the private sector – good security is good for business. And by security, I don’t mean staffing the ships with heavily armed mercenaries. As romantic an alternative that as that might be against romanticized criminals, it isn’t a practical solution. A meaningful security solution entails planning, analysis, and risk mitigation and avoidance to keep ships out of harms way. The US Navy, while fully capable of such a task, neither has the time or resources in its current configuration to deal with seaborne criminals.
We need to rethink our policy and its implication for Homeland Security. Security is key function to businesses and there are measures shipping companies (foreign and domestic) can take to reduce the burden on the US and the US Government should have other priorities than to once again bail out more unwilling or irresponsible managers.