Second Wave - Time to Rethink Security 29.11.2013

Madis Madalik, CFO of ESC Global Security, writes about the Second Wave - Time to rethink security in Ship Technology Global December issue. The article is also covered in 
Link to the article

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The times when any team-leader could start his own private maritime security company are over. The market entry barriers are higher than ever and small security companies cannot compete with market leaders due to extremely high expectations from international maritime organizations, flag states and shipowners. Maritime security market is strictly regulated and runs as a clockwork.

Despite this, there are still a lot of companies who are cutting corners, by not insuring the company properly or losing operational staff and legal support. The reason behind this is simple: to keep up with the standards – including all the insurances, licensing by the different flag-states and authorities, maintaining the equipment and daily operational costs – is unbearable for the smaller PMSCs.


Madis Madalik, CFO of ESC Global Security advises how to get a cost effective security service without any drawbacks on quality or industry standards.


Standards are being raised and certification process is getting more detailed and complex. What certifications to consider?

The whole industry is waiting for the new ISO 28007 standard to differentiate serious companies from the ones who just want to try it out. The standard robustly tests the PMSC management system and its ability to deliver security services using qualified personnel with the requisite qualifications. I see a weak point here – ISO standardization does not ensure that the company is duly licensed to protect a specific vessel under a specific flag, nor does it ensure for example that proper insurance cover is actually in place. However, it will most definitely be a starting point and a bar for the shipping companies. 

ISO Accreditation is mostly UK-led. A few companies have been audited as part of the pilot scheme and are marketing themselves on that basis. It was hoped that this would be a one-stop shop that would then avoid PMSCs having to be audited by individual states. That has not happened yet, but, if the IMO gets behind it more emphatically, that may change. In the meantime, Flag States have set their own criteria, which they continue to apply.

A step further from the ISO 28007 certification is flag state approvals to serve on certain flag state vessels. These certifications can be more detailed in some specific areas – insurances according to Guardcon contract, 2-year minimum experience requirement for security guards, request to use specific equipment (handcuffs), company’s representative must have military background etc. Many PMSC’s wouldn’t even qualify to these standards and detailed background check by the flag states sorts out the legally correct and well functioning companies.

Company’s own vetting procedures tend to concentrate on quite similar topics as before mentioned certifications. I wouldn’t want to say that the own vetting procedures are waste of time, on the contrary although I would suggest concentrating more on the specifics of the concrete vessel type, really check previous references and experience on similar operations or vessels. This is an opportunity to dig into details that are important taking into account the specifics of the operations, the vessel, the cargo – check what kind of sights are used for the weapons, the amount of ammo for each weapon on board, the previous experience on similar vessel types, ask for the references etc. The more experienced company the better-organized and reasonably priced operations and not to mention the lower operational costs that the well-established company can get from the third parties.


Standards are being raised, how to keep the prices low?


Cost efficiency should be obtained using alternative solutions rather than reducing team sizes or cutting corners. I strongly believe that PMSCs will become more focused on servicing certain types of vessels or flag states to ensure that they will be applicable to all the regulations in one segment or in one (group of) flag-state(s) to help them keep the costs for standardization under control.


I have spoken to many of the CEO’s from different PMSC-s and all support the fact that the regulations are being tightened daily, which helps to sort the serious companies from the start-ups. That is even if the prices are constantly pushed down by the industry and heavy competition within it. 


Shipping companies should always have a close look at the full scope of the offer for maritime security services, rather than only comparing the price tag at the end. But why is that so important? 

First of all, open-minded communication between the PMSC and shipping company should be established from day one. In some cases, it makes more sense to keep the security team on-board rather than disembarking and re-embarking it within the next few days. Taking this into consideration, then both, PMSC and client must be sure that the firearms and guards are allowed in the port of call. The initial information on this should arrive from the provider and must be double-checked by the client.

The goal behind this would be to achieve a win-win situation, where the security company does not have to cover additional third party costs and therefore can supply the services at a better rate.

In some cases (such as the Gulf of Aden, surrounding ports near Sri Lanka, and so on), the shipping company can save up to 10-30% if the voyage will be combined as one continuous voyage instead of two separate ones. In this case, we’re talking only about the direct costs, which relate to the PMSC, meaning indirect costs would drop, too.

The use of floating decks and their benefits

Although the use of floating armouries and their legal aspects are a mayor question for both PMSCs and shipping companies, it’s still clear that these will help save both time and money. The best example, of course, is Oman’s Muscat port vs Fujairah floating armouries. Using a floating armoury instead of the port avoids the rerouting of the ship, saves fuel, time and money. That means that if there’s a difference of a few thousand dollars or even more, it might be cheaper to hire a PMSC starting from Fujairah and pay it for the extra time, rather than absorbing the indirect costs that involve with embarking at the port. 

The second advantage of floating armouries is the fact that there are neither government regulations nor port dues, which usually add costs on top of the PMSC’s quotation. 

Comparing the same aspects in the Red Sea, the advantages of floating armouries are pretty much the same, with one addition: it also saves time for PMSCs, which, in turn, reduces time spent on the vessel – which, of course, reduces the costs.

Taking all this into account, it’s easy to see that the companies that would use the designated ports as embarking/disembarking hubs cannot compete with the companies that would use floating decks. This pushes the PMSCs towards using only the floating decks. However, listing all the actual pros and cons of floating armouries would require an entirely separate article.


Changes in payment terms: it’s a 
buyers’ market

The time when security companies were paid upfront are pretty much over. Nowadays, clients are demanding payment terms of 30 to 60 days and counted from the date when the invoice is being issued. This means that shipping companies are looking for a strong financial partner or substantial equity to do business with. This all can be achieved with an open-minded communication between the client and the supplier. As of today, ESC Global Security has achieved the same with many of our clients. 

These measures will help to ensure that the co-operation between shipping company and supplier will remain strong as it will help avoid the constant pressure on paying the invoices on the date of disembarking or, as mentioned, up front. This ensures that both parties can concentrate on their usual day-to-day activities.