Piracy Cost Jumps to $6.9 Billion With Attacks Off Somalia Reaching Record

By Michelle Wiese Bockmann

Somali pirates cost the shipping industry and governments as much as $6.9 billion last year as average ransom payments advanced 25 percent, according to One Earth Future Foundation.
Ships are spending an extra $2.7 billion on fuel to speed up through the area because no vessel has been captured while traveling at 18 knots or faster, the Colorado-based non-profit group said in a report today. Governments spent $1.27 billion on military operations, including warship patrols, and ship owners another $1.16 billion on armed guards and security equipment.
Attacks in the Gulf of Aden, the Red Sea and off of Somalia, an area larger than Europe, jumped fivefold in the past five years to a record 236, according to the London-based International Maritime Bureau. An estimated 42,450 vessels a year passed through the piracy-prone region, One Earth said. About 20 percent of world trade goes through the Gulf of Aden between Yemen and Somalia, which is used to get to Egypt’s Suez Canal, connecting the Red Sea and Mediterranean. It is the fastest crossing from the Atlantic Ocean to the Indian Ocean.
“The human cost of piracy cannot be defined in economic terms,” Anna Bowden, the author of the report, said in a statement. “We do note with great concern that there were a significant number of piracy-related deaths, hostages taken, and seafarers subject to traumatic armed attacks in 2011.”
Attacks off the East African country’s coast last year led to 1,118 seafarers being taken hostage and 24 killed, One Earth said. A total of 31 ransoms were paid, with the average amount increasing by 25 percent to $5 million.

Piracy Costs

Shipping bore about 80 percent of piracy costs, totaling between $5.3 billion and $5.5 billion, according to the report.
The highest ransoms were paid for tankers carrying oil, because cargoes are worth around $200 million on the biggest ships, One Earth’s said. About half of all ships use armed guards, up from 25 percent a year earlier. Vessels using this form of protection have been safe from hijacking.
About $530.6 million is paid to maritime security firms a year, One Earth estimated. Owners and operators were also spending nearly $37,000 a year on security equipment such as razor wires and electric barriers for ships.
Re-routing vessels away from the piracy areas probably added as much as another $680 million to shipping costs and owners paid $635 million in insurance premiums, One Earth said. Vessels are diverting from piracy-prone areas by sailing closer to the western Indian coastline rather than sailing around the Cape of Good Hope, the standard practice when attacks first started nearly four years ago, according to the report. About 30 percent of seafarers are paid twice as much for going through the area, adding an estimated $195 million in labor costs.

Prosecuting Pirates

About $38 million a year is spent on prosecuting and imprisoning pirates and building up local capabilities to fight piracy, One Earth said.
About 90 percent of pirates caught by military patrols aren’t prosecuted, One Earth said, citing a United Nations report published January 2011.
“The international community seems to be approaching a saturation of willpower and/or capacity to accept further pirates for trial,” according to the report.
About a third of pirates caught between 2008 and 2010 were arrested, with more than 1,000 tried or waiting for trials in 20 countries at the end of 2010, according to the report, compared with less than 10 percent at the beginning of 2011.

Fewer Patrols

One Earth also said counter-piracy patrols will decline this year, from around 18 vessels to about 11 or 12, as European and North Atlantic Treaty Organization-led operations signaled deployments will be curbed in 2012.
Piracy also cut regional trade and affected tourism in neighbouring Kenya, according to the report. Kenya lost between an estimated $129 million and $795 million in tourism revenue and between 3 percent and 20 percent of the country’s tourism jobs after kidnappings in 2011, the report calculated. India’s coal imports from South Africa fell in 2011 because of additional costs moving the commodity through piracy zones, according to the report.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net