Somali piracy costs global economy $ 7 b

Monday, 13 February 2012 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Somali piracy in the Indian Ocean costs the global economy some $ 7 billion a year, a study said on Wednesday, with ships forced to travel faster over longer routes and increasingly hire armed security guards.

“The question for the shipping industry is how long this is sustainable,” said Anna Bowden, Programme Manager for the research by the US-based One Earth Future foundation.

For the last five years, a few hundred pirates sailing from a handful of towns in the Somali enclave of Puntland have pushed ever deeper into the Indian Ocean despite the dozens of international warships trying to stop them.

The study showed world governments spending at least $ 1.3 billion trying to control the problem, a figure dwarfed by shipping industry costs estimated at up to $ 5.5 billion.

The biggest single item was the $ 2.7 billion it costs for lone container ships to hurry through at much higher, and much less economic, speeds. Non-container ships with less flexibility to increase speed were adopting other costly strategies.

Shippers also spent more than $ 1 billion on private security guards, often armed, a figure that was rising sharply, the study showed. Half of all ships were carrying guards by the end of last year, against an average of 25 per cent for the whole year. That means the private security companies, many based in Britain or elsewhere in northern Europe, that combat the pirates were earning much more than the pirates themselves.

The report estimated the total paid in ransoms at $160 million although the average ransom for a ship paid in 2011 rose from $4 million to $5 million.

Whilst slightly fewer ships were taken in 2011, the amount of time vessels and crews were held hostage kept increasing, as did the level of violence used in attacks and against hostages.

Nonetheless, protective measures have proved relatively effective, the study said. So far, pirates have never seized a ship travelling faster than 18 knots. Armed private security guards also had a 100 percent success rate in protecting ships.

Shippers have added barb wire and an array of other measures to vessels, including “citadels” - armoured safe rooms in which crews can shelter from attack until naval help arrives.

That has helped bring down insurance premiums, although shippers are still paying some $635 million in extra premiums.

Re-routing ships to hug the Indian coast to avoid the mostly unpatrolled Indian Ocean cost $486-680 million. Crews demanded some $195 million in higher wages to transit the region. “A major risk for 2012 is that complacency sets in if we think piracy is now under control,” said Jens Vestergaard Madsen, a senior researcher on the project. “Pirates were less successful in 2011, but the piracy problem is still not resolved. Ninety nine percent of these costs are spent mitigating the problem, not resolving it.”

In its first attempt to put a price tag on Somali piracy a year ago, the foundation estimated an annual global cost of $7-12 billion.

This year’s estimate was at the lower end of that range partly because of a better dataset and partly because some numbers used earlier, such as estimates from insurance firms of ransom costs, appeared unrealistically high, the authors said.