The cost of maritime piracy is substantial and can cause significant damage to a company’s bottom line. According to comments recently made by Russian Navy Rear Admiral Vasily Lyashok, Somali pirates have become more flexible, adaptable and better organised and have more modern weapons and communications.
And with costs including ransoms, insurance premiums, re-routing ships away from piracy risk zones, fuel costs associated with increasing speeds at which vessels transit, and the cost of naval forces, piracy is a concern that companies should pay close attention to, according to maritime security firm Typhon.
There is also the human cost of piracy, and while it is not quantifiable in economic terms, it is nonetheless a high cost, with crew being taken hostage, some killed, some being held for up to 18 months, and the associated trauma.
Typhon is due to launch its marine convoy protection service this year. The company’s offering involves accompanying ship operators in transit through piracy hotspots such as the Gulf of Aden, the Gulf of Guinea, the Arabian Sea and the Indian Ocean.
According to studies quantifying the cost of piracy conducted by One Earth Future (OEF) Foundation, piracy is costing the global economy between $7-billion to $12-billion per year, and the global cost of Somali piracy is between $6,6-billion and $6,9-billion per year.
Although there has been a decrease in reported piracy off the coast of Somalia, attacks are escalating in other locations including the Gulf of Guinea, Indonesia and further afield.
According to the International Maritime Bureau’s Piracy and Armed Robbery against Ships Report 2012, the following three locations out of eight reported the highest incidence of piracy for the year: Indonesia (81%), Somalia (49 %), Nigeria (27%). The remaining five locations listed were Togo (15%), Red Sea (13%), Gulf of Aden (13%), Malaysia (12%) and Bangladesh (11%).
“Figures suggest reported piracy off Somalia is decreasing. However, the pirate action groups are still out there, and according to Lyashok, Somali pirates are flexible and can quickly adapt to new strategies, have become better organised and enhanced by a support network, have satellite communications, shore bases, depots, arsenals, training facilities for their pirates, and a single leader.
“Western naval analysts also say they are extending their range to the Oman Sea,” says Typhon CEO Anthony Sharp.
“The reported decrease in piracy in Somalia has a lot to do with an extended period of monsoonal weather, the re-routing of vessels to the western Indian coastline rather than around the Cape of Good Hope, the presence of foreign naval forces and the use of private maritime security firms to deter pirates. There has also been widespread under-reporting of piracy incidents to avert escalating insurance premiums.
“With falling naval budgets across the globe, there is a chance that countries will begin to reduce the level of security they can offer and eventually, they will withdraw their navies from some of the world’s most dangerous waters.
“Should this happen, the attacks will escalate as the threat is still there and the pirate networks are heavily armed. Companies that need to transport goods across high-risk waters need to incorporate a bespoke security model into their plans,” says Sharpe.
“Then there are also locations where we are seeing not only an escalation in piracy but a rise in the level of violence used in those attacks. The coast of West Africa or the Gulf of Guinea is one example.
“Around 30 000 ships transit through this trade route annually, including ships transporting oil and gas. Illegal oil bunkering and LNG theft is big business for pirates off the coast of West Africa. Billions of dollars-per-year of oil revenues to Nigeria are being lost as a result of illegal oil bunkering.”
Taking the example of piracy in Somalia, in 2011, the shipping industry bore the brunt of the economic cost of piracy, incurring between $5,3-billion and $5,5-billion, which accounts for over 80% of the total cost. Although the success rate of hijackings was down in 2011 compared to 2010, the price of ransoms actually increased.
“Piracy impacts on regional nations not just in terms of the trading of goods, but also in terms of the perception of how secure prospective visitors and investors will think they are. Essentially foreign direct investment is affected – something that doesn’t bode well for countries looking to improve their standing on the world stage,” Sharpe concludes.