US embassy cable - 05SANAA1317

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 001317 
 
SIPDIS 
 
STATE - PASS TO USTR/JASON BUNTIN. DOC - PASS TO 
CHRISTOPHER JAMES AND TYLER HOFFMAN. 
 
E.O. 12958: DECL: 05/17/2015 
TAGS: ECON, EINV, ETRD, EWWT, YM, ECON/COM 
SUBJECT: SHAKEDOWN AT THE ADEN PORT: SHIPS DETAINED BY 
INSURANCE CLAIM SCAMS 
 
Classified By: Ambassador Thomas C. Krajeski for reasons 1.4 b and d. 
 
1. (C) Summary.  Commercial maritime traffic to the Port of 
Aden, already far below the port's potential, may decrease 
further due to exaggerated insurance claims and an unusual 
practice of detaining ships in Yemen.  Several worldwide 
insurance clubs have met in the last month to discuss these 
problems and are considering levying an additional premium of 
25 to 30 percent on cargo shipments to Aden.  Such a high 
premium will impede further what has been Aden's slow 
economic recovery since the 2000 USS Cole and 2002 V/M 
Limburg attacks.  End Summary. 
 
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International Shipping Held Hostage in Aden 
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2. (C) Currently, the same ton of cargo shipped from London 
to Aden that costs 100 USD only costs 20 USD to ship to Dubai 
Port, although it is farther away.  Already factored into the 
higher cost of using Aden Port are premiums for the perceived 
elevated security concerns and official corruption.  Several 
Protection and Indemnity insurance "overclubs" are now 
considering adding a 25 to 30 percent premium for shipments 
to Aden Port due to exorbitant damage claims being filed by 
Yemeni companies against international shippers, and the Port 
Authority's practice of detaining ships in port pending a 
court decision or private settlement. 
 
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Corrupt Courts and Business Threat Viability of Aden Port 
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3. (SBU) The Aden commercial court is considered corrupt and 
ineffective.  Yemeni shipping companies note that new cars, 
gifts and other bribes to the judge can help obtain a 
favorable judgment.  Given the court's reputation for 
corruption, international companies will usually choose to 
settle privately.  When the first insurance claim against 
damaged cargo was filed two years ago in Aden, the insurance 
company immediately paid a settlement.  Other Yemeni 
companies caught on to this easy method of making money. 
Since then insurance claims have significantly increased, as 
a result, more and more ships are being detained in Aden 
Port. 
 
4. (SBU)  Examples of this insurance scam include the release 
of the Golden Rain (Chinese) only after a multimillion-dollar 
claim was settlement for 450,000 USD, and the detention of 
the Osman Meti (Turkish) until the insurer settled a 
multimillion-dollar claim for 2.25 million USD.  Most ships 
are detained for a minimum of several weeks, although in 2004 
a ship was held in port for seven months. This January, the 
Patera, an Italian cargo vessel carrying steel rebar from 
Turkey, was detained in Aden port due to an insurance claim 
of 10 million USD in damages to its cargo.  Local Aden 
commercial contacts doubt that the actual damage of the 
Patera's cargo was even close to that figure.  Patera's 
insurance club sent its attorney and surveyor, Mr. Les-Rice 
to Aden to negotiate with the Port Authority and the 
claimant.  As of early May, Les-Rice and the insurance 
company agreed to pay 1 million USD to release the Patera 
from custody while they continue negotiations. 
 
5. (SBU) Most of the exorbitant claims are made against 
shippers of rebar, steel, plywood, and timber.  Rebar is sent 
to Yemen in what the industry calls "blue state", a tint 
acquired during production.  When the rebar shipment is 
delivered in Aden, Yemeni companies file multimillion-dollar 
complaints for damage calling the tint "atmospheric rust." 
The insurance industry considers blue state rebar within the 
industrial standards of the United Kingdom and United States, 
and also holds that atmospheric rust does not damage the 
structural integrity of rebar.  As regional exporters of 
steel and rebar, Turkish ships have been detained so often in 
Aden that the Turkish Embassy took the unusual step of 
denying visas to businesspeople from the most egregious 
Yemeni claimant companies. 
 
6. (SBU) Comment.  With oil revenues expected to decrease, 
and current tendering ROYG processes for both management of 
the Aden Port and Aden Container Terminal, corruption 
threatens to dash hopes for an emerging maritime economy in 
Aden.  In an industry where revenue and cost are counted in 
terms of time and dollars saved per ton and container, an 
additional 25 or 30 percent shipping insurance premium will 
deter shipping from using Aden Port and the loser will be 
Yemen's struggling economy.  End Comment. 
Krajeski