Publish Date : 27 Jan 2017
Sovereign Global Solutions’ decision to leave the maritime market due to ‘severely sub-standard’ competitors could lead to capacity issues for owners. Sovereign Global Solutions (SGS), the biggest floating armoury owner, has pulled out of the market leaving the maritime security industry bracing itself for a domino effect. In its notice of termination to clients, the UK-based group, which operates worldwide, said it had decided to exit the business in the wake of “severely sub-standard providers of maritime logistics services, who continue to regularly breach international embargoes”.
SGS controls two operational support vessels, used as floating arms stores, along with smaller crew transfer ships in the Red Sea and the Gulf of Oman. With the support of the Djibouti government, it has more than 300 employees worldwide and reported annual revenue of $40m in 2015.
Group managing director Jordan Wylie told TradeWinds: “The biggest reason for our extraction from the market is that our government clients see that although we have run a well-regulated and administered, safe and legal operation, many others in this field don’t, and that poses a risk to our clients and our own reputation.
“The risk appetite from private maritime security companies (PMSCs) and other floating armoury providers continues to increase and it is of great concern.”
Industry sources suggest that SGS’ decision to leave the market will soon create a “really bad credit crunch for the maritime security world”.
In the event of more floating armoury providers or PMSCs exiting the business, shipowners would be affected by changes in the supply and cost of security services on their ships.
TradeWinds understands that two big shipping companies from Germany and Norway have inadvertently used armed guards from a bankrupt PMSC on their ships.
SGS’ exit from the market clearly creates a capacity issue within so-called High Risk Areas (HRAs).
Wylie told TradeWinds: “Now that we are withdrawing from this market, it is going to be a very interesting time for the industry.
“As well as the legal, safety and quality issues, you also have to consider the capacity issue; we had the largest capacity, so where are all these people and controlled goods going to go?”
Gerry Northwood, chief executive at maritime risk management company MAST, said: “There is clearly a confidence issue here.
“Seeing the closure of an armoury vessel which has reduced the capacity in the region by about a quarter, shipowners want reassurance that normal services will be continued.
“I would like to know that my ship would not be somewhere with no armed guards to embark.”
More collapses likely
PMSCs with firearms and guards onboard SGS’ vessels have been asked to settle their bills within 10 days of the date of receipt.
A source added that it is highly likely this could take a lot of smaller PMSCs closer to collapse as they would need several months to pay.
Traditionally, PMSCs have used unofficial credit lines to fund their businesses in the face of reduced rates paid by shipowners. As the announcement from SGS suggests, this has contributed to claims of illegal activities by some companies, cited by SGS as a key reason for it withdrawing its services.
In December, TradeWinds reported that weapon sharing is an ongoing practice within the maritime security world and could put owners in a legal fix.
Wylie added: “The weapon sharing issue is also a cause for concern and has been for many years. We have lobbied hard on this issue without any real success.
“Weapon sharing is not only illegal and unethical, it also poses a great risk to regional security in a very complex part of the world.
“This is just another tactic from certain sub-standard PMSCs to cut corners in order to reduce costs, a dangerous game to say the least.’’