Nigerian ports are some of the most expensive in the West African region, no thanks to the numerous fees paid on Nigerian-bound cargoes, including the WRI premium, ANOZIE EGOLE writes

The maritime industry has experienced a significant increase in war risk insurance premiums in recent years, particularly for Nigerian-bound shipments. This trend is driven by a confluence of factors, including geopolitical instability, piracy, and terrorism, particularly in the Gulf of Guinea, where Nigeria’s ports are major hubs for global trade. As the cost of war risk insurance continues to rise, stakeholders in the global supply chain – shippers, insurers, and importers –are feeling the pressure as it pertains to the causes, impacts, and implications of these premium increases.

War risk insurance is a specialised form of coverage that protects vessels and cargo against damages or losses caused by acts of war, terrorism, or piracy during transit. For shipping companies, securing war risk insurance is a necessary measure to protect against these volatile risks, especially in regions with high geopolitical tensions or areas known for piracy.

According to the International Maritime Bureau, piracy off the coast of Nigeria and surrounding waters has been a significant threat to global shipping, leading to higher insurance premiums. Since 2018, piracy incidents in the Gulf of Guinea, which includes Nigerian waters, have contributed to higher insurance costs. Insurers classify these regions as “high-risk”, requiring additional premium charges.



The war risk insurance premiums for Nigerian-bound cargoes have seen a dramatic increase over the last decade. A report by the International Union of Marine Insurance indicates that, in 2020, war risk premiums for Nigeria-bound shipments had risen by 20-30 per cent compared to the previous years, mainly due to the worsening piracy activities and threats from armed groups operating along the Nigerian coast. In 2015, premiums began rising in response to increased piracy incidents in the Gulf of Guinea. Between 2018 and 2019, the situation worsened, with Nigeria experiencing an uptick in piracy, kidnappings, and other violent activities, pushing premiums higher. In 2020, it experienced 25 per cent increase due to political instability, militant activities in the Niger Delta, and maritime insecurity. It continued to rise in 2021-2023, with some shipping firms reporting increases of up to 35 per cent for high-risk zones, especially along the Nigerian coast.

By 2023, premiums rose as high as $50,000 to $100,000 for a single voyage, depending on the size of the cargo and the specific route taken.

Impact of rising premiums on the Nigerian economy

As one of Africa’s largest economies and a major oil exporter, Nigeria plays a crucial role in global maritime trade. However, the soaring cost of war risk insurance premiums has placed a burden on both international shipping lines and Nigerian importers.

For example, Nigeria’s oil and gas industry, which relies heavily on maritime shipping for the importation of equipment and crude oil export, is one of the hardest-hit sectors. A 2019 report by the Nigerian National Petroleum Corporation Limited highlighted that the industry was spending millions of dollars annually on war risk premiums due to the growing piracy concerns. This has led to increased costs for goods and services, which are ultimately passed down to consumers.

According to the World Bank, the increase in insurance premiums has had a ripple effect on Nigeria’s overall shipping costs. In a recent analysis, the bank noted that shipping costs to Nigerian ports had risen by an average of 15 per cent from 2020 to 2023, contributing to inflationary pressures on the economy.

One of the primary reasons behind the hike in war risk insurance premiums is the region’s high piracy and armed robbery rate. The International Maritime Bureau’s Piracy Reporting Centre has continuously flagged the Gulf of Guinea as one of the most dangerous regions for shipping. Between 2018 and 2021, the Gulf of Guinea accounted for more than 40 per cent of global piracy incidents, Nigeria being the epicentre of these attacks.

In a 2021 IMB report, Nigeria ranked as the third most dangerous country for piracy globally, after Somalia and Indonesia, with significant incidents of hijacking, crew kidnapping, and attacks on vessels. In 2020, the Gulf of Guinea saw 135 attacks on vessels, with over 200 crew members taken hostage, many of whom were released after ransoms were paid.

The impact of these acts on insurance premiums is profound. Insurance companies assess the risk of piracy and terrorism based on the frequency and severity of attacks. The more attacks, the higher the perceived risk, which leads to higher premiums.

Beyond piracy, the Niger Delta region has experienced intermittent militant activities, leading to disruptions in the oil and gas industry, further exacerbating risks for shipping. Groups like the Niger Delta Avengers have repeatedly attacked oil infrastructure, making shipping through the region riskier.


Meanwhile, as the cost of war risk insurance continues to climb, Nigerian importers, exporters, and shipping companies are adopting various strategies to mitigate these escalating costs. Many shipping companies are collaborating with private security firms to ensure the safe transit of cargo through high-risk zones. Armed security personnel are often placed aboard vessels to protect crews and cargo. Some companies are opting for longer routes to avoid the immediate piracy hotspots off the Nigerian coast. Although this can add time to the delivery schedule, it can reduce the cost of insurance premiums. Large shipping companies are increasingly forming syndicates to spread the risk of high insurance premiums. This strategy helps reduce individual exposure while ensuring cargoes are still insured. Some Nigerian ports, including Apapa Port in Lagos, have invested in enhanced security measures, including surveillance systems and patrols, to improve the safety of shipping activities.

Government’s efforts

International institutions such as the International Maritime Organisation and the United Nations have been working to address the issue of piracy and maritime insecurity in the Gulf of Guinea. The IMO has called for stronger international cooperation and support for countries like Nigeria in tackling piracy and maritime crimes.

At the national level, the Nigerian government has also taken steps to mitigate the impact of piracy on maritime trade. In 2013, Nigeria launched the Integrated National Security and Waterways Protection Infrastructure (also known as the ‘Deep Blue Project’), which aims to enhance maritime security through surveillance systems, rapid response units, and the deployment of armed personnel. The Nigerian Navy has also increased patrols in the Gulf of Guinea. Despite these efforts, challenges remain, and piracy persists as a major contributor to the rising costs of war risk insurance.

The PUNCH recently reported that the Nigerian Maritime Administration and Safety Agency announced that in the last three years, Nigeria has paid over $1.5bn to Lloyd’s of London, Protection and Indemnity Insurance, and other foreign insurance firms in war risk insurance premiums.

The Head of Public Relations at NIMASA, Osagie Edward, stated this in a statement obtained by our correspondent.

Meanwhile, recent data from NIMASA revealed that Nigeria currently has a fleet of 4,610 flagged vessels with a total tonnage of 6,131,814.55 gross registered tonnage and 1,102 cabotage vessels with a combined tonnage of 2,037,184.63 GRT.

This means a total of about 4,610 vessels might be paying this WRI premium.

Edward explained that the financial burden was initially introduced during the height of Niger Delta militancy and piracy, adding that the impact of this payment on Nigeria’s economy is staggering.

According to Edward, for a very large crude carrier valued at $130m, “the WRI surcharge per voyage is approximately $445,000. For new container vessels valued at $150m, the cost rises to $525,000 per voyage.”

“Although the Nigerian Bureau of Statistics does not have precise data on the total WRI payments made to international insurers, available figures indicate that Nigeria has paid over $1.5bn in the last three years alone to Lloyd’s of London, Protection and Indemnity insurance, and other foreign insurance firms,” Edward said.

Edward highlighted that Maersk Line, one of the world’s largest shipping companies, also introduced a transit disruption surcharge of up to $450 per container, while other shipping lines impose a war risk surcharge of $40–$50 per 20-foot container.

He mentioned that recognising the severe economic implications of the WRI, NIMASA, under the current leadership of Dr Dayo Mobereola, has launched an aggressive campaign to eliminate war risk insurance on Nigeria-bound cargo.

Edward further stated that the NIMASA Act and the Merchant Shipping Act mandate the agency to promote shipping development, and removing the WRI premium has become a central focus of its maritime reforms.


“The security concerns that originally justified these premiums no longer exist,” he said, stressing that the country has not recorded a single piracy incident in over three years, “and in 2021, the International Maritime Bureau officially removed Nigeria from its list of piracy-prone countries.”

He maintained that in the past five years, NIMASA, in collaboration with the Nigerian Navy, has led an unprecedented crackdown on piracy in the Gulf of Guinea, earning recognition from the International Maritime Organisation.

Edward lamented that despite these achievements, international shipping companies have continued to impose war risk insurance premiums, adding that in 2023, the International Bargaining Forum further validated Nigeria’s progress by delisting the country from the list of high-risk maritime nations.

The NIMASA’s image maker queried that, with piracy no longer a concern, why has the international shipping community continued to impose these excessive premiums?

He added that to address these issues, the Ministry of Marine and Blue Economy and the Ministry of Defence made significant investments in maritime security through initiatives like the Deep Blue Project, “which has successfully eliminated piracy in the country’s waters for over 30 consecutive months, a record unmatched anywhere in the world.”

He reiterated that the country collaborates closely with the IMO and other international bodies to combat maritime threats, further reducing its risk classification.

Edward said that the Secretary-General of IMO, Arsenio Dominguez, has publicly commended Nigeria’s efforts in securing the Gulf of Guinea.

“Despite these improvements, shipowners and insurers have refused to acknowledge Nigeria’s new security status, continuing to levy exorbitant premiums on vessels operating in the country,” he lamented.

Meanwhile, determined to break this cycle of financial exploitation, Mobereola, under the directives of the Minister of Marine and Blue Economy, Adegboyega Oyetola, took Nigeria’s case to international stakeholders, urging them to support the removal of war risk insurance premiums.

He said that the NIMASA DG also engaged Chatham House, where he met with the Director of the Africa Programme, Dr Alex Vines, who agreed to escalate the matter to the United Nations.

“NIMASA has also engaged major global shipping organisations, including the Baltic and International Maritime Council, the world’s largest shipping association, the International Chamber of Shipping, and the International Association of Dry Cargo Shipowners, among others,” he said.

Experts speak

Meanwhile, the President of the National Association of Master Mariners, Captain Tajudeen Alao, said that Nigeria has remitted so much as world risk insurance, adding that the move has made the freight rate for cargoes coming to Nigeria higher than others.

“The freight rate is higher for Nigerian-bound cargoes. Because it is a threat for any ship going into this zone, any ship owner will not pull their ship down. That means you have to pay higher for freight and higher for insurance premium,” he explained.


He said before now, importers were paying about £6,200 as freight for a 20-foot container for vessels coming from the United Kingdom to Nigeria and that the country has been increasing exercises on international shipping pot facility codes.

“At the time of political reasoning in the 70s and 80s, any ship that comes to South Africa from Cape Town, among others, is barred from coming to Nigeria. So, it means we have to carry the cargo from that area, drop it in South Africa and go, or drop it in Lumen. The ship will carry everything from Lumen to Nigeria,” he said.

Also speaking, a shipowner, Captain Emmanuel Iheanacho, argued that war risk insurance is paid on cargoes going to war areas and that the war risk premium is stripping value from the Nigerian economy.

“You normally pay for normal insurance, but then the war risk is paid if you’re going to operate in a war-like area where there is war. So, we argue that Nigeria cannot be classified as a war-risk area and that the extra premium that insurance companies are charging is unnecessary. They are stripping value from the Nigerian economy by placing those extra charges. So that’s the situation. War-risk insurance in the Nigerian context, in my understanding, I think a lot of people are taking advantage of people’s lack of knowledge of international trade and shipping issues, and they are earning money that they are not entitled to,” Iheanacho said.

A former president of the Shippers Association Lagos State, Jonathan Nicol, said that all payments must be documented and there is no place in the Bill of Lading where the WRI is captured.

“We are not at war, and countries around us are not at war, so I don’t see why we are paying the WRI when we are not at war or threatened by war. We expect them to protect us from such payment because we are not at war,” Nicol said.

Captain Dada Olabinjo opined that there is no war in Nigeria to warrant payment of WRI on Nigeria-bound cargoes.


Conclusion

The outlook for war risk insurance premiums on Nigerian-bound cargoes is uncertain. While there have been some improvements in security, such as the decline in reported piracy incidents in recent months, the underlying risks remain. Political instability, economic challenges, and militant activities continue to make Nigeria a high-risk destination for maritime trade.

Insurers and shipping companies will likely continue to monitor the situation closely, adjusting premiums based on developments in regional security. The increasing adoption of digital risk management tools, such as predictive analytics, may also help in assessing risks more accurately, potentially offering some relief in premium pricing.

The increase in war risk insurance premiums for Nigerian-bound cargoes underscores the complex challenges faced by the global maritime industry in navigating unstable regions. With piracy, terrorism, and geopolitical instability showing no signs of abating, the costs associated with securing maritime shipments to Nigeria will likely continue to rise. Stakeholders across the shipping and logistics sectors will need to adapt to these challenges, seeking innovative solutions to mitigate risk while safeguarding their operations and interests in one of Africa’s most critical trading hubs.