Is Maritime Security a Growth Industry?

Traditional weapons are part of the maritime-security mix.

Maritime security has been transitioning from a fractionalized industry to a more rational business dominated by a handful of major players. Does this consolidation position the industry for better times ahead? Or is the industry likely to become a “utility” in which firms are centered on cost reduction in the absence of revenue growth?

The industry is strategically-aligned with macro trends. At a base level, political upheaval is likely to propel the industry out of its current consolidation phase:

Straits of Hormuz. Conflict at this choke point may be the most topical. Recent attacks on tankers have led to an immediate increase in the demand for security personnel on Gulf-bound vessels, according to industry sources.

South China Sea. Singapore-based officials are worried that Chinese territorial claims in the South China Sea will lead to industry disruptions, amplifying already-high commercial security issues. Making headlines, a South Korean dry-bulk vessel was attacked by pirates in nearby waters last month.

Caribbean. The security hole around Venezuela has given rise to more-and-more seaborne attacks, with local officials conceding that pirates now control the waters between Trinidad and Venezuela. Routine scavenging has now turned lethal.

There is also the matter of the global economic cycle bolstering the maritime security industry. Weaker growth worldwide, perhaps dramatically so, is set to create pockets of economic unrest where piracy can thrive. The collapse in the oil trade, for instance, may lead to an even greater number of attacks off the west coast of Africa. Elsewhere, a retreat in multinational security personnel over general fiscal concerns could see a resurgence of piracy near the Horn of Africa.

The maritime security industry is positioned to respond to heightened requirements, in part because of the dramatic shift in the cost of labor. At one time, the backbone of the industry was made up of highly-paid servicemen, often from Western nations. Similarly-skilled servicemen from South Asia now dominate security positions at sea. Lower personnel costs have compensated for relentless increases in insurance premiums imposed on shipping companies.

Companies that operate in the maritime security field and their venture backers may be surprised at the bounce in revenue that they see over the cycle ahead. The high seas have always been a cauldron of surveillance issues, but the current global backdrop may bring those concerns to a boiling point. Short of the immediate security perimeter around choke points and seaports, most shipping companies are likely to feel a greater-and-greater need for heightened defensive personnel to monitor their cargo assets.

Our Vantage Point: Shipping is a notoriously cyclical business, but the maritime security component of the industry may prove counter-cyclical. A key reason is that a dramatic shift in labor costs has brought operating expenses back to reality, encouraging ship owners and operators to reinforce their front-line.

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Image: Traditional weapons are part of the maritime-security mix. Credit: Mblach at Can Stock Photo Inc.