The Human and Economic Costs of Somali Piracy

Somali pirates, the bane of freighters and tankers plying routes south of the Arabian Peninsula, are adopting daring new tactics to counter the effects of a multinational naval crackdown and better-protected merchant ships.

In the first-ever attack on a vessel at anchor in a country’s territorial waters, armed pirates hijacked the chemical tanker Fairchem Bogey within sight the Omani port of Salaleh on August 20, according to the International Maritime Bureau (IMB). The bureau’s Piracy Reporting Center explained that armed pirates boarded the ship, took its 21 crew hostage and put the vessel on course for Somalia.


Earlier last month, at least two freighters told the IMB that the largest ever number of pirates working together had swarmed their vessels.

The Neptune came under attack August 7 off the coast of Eritrea by a dozen skiffs each carrying five to eight pirates. The crew fought off the pirate armada, but 11 days later a second, an unnamed bulk carrier was nearly hijacked by a fleet of seven skiffs in the same area.

A report entitled “the human cost of Somali piracy”, issued by Oceans Beyond Piracy, (OBP- an initiative sponsored by the One Earth Foundation) provides an excellent and worrying account of the lack of public concern to the fate of seafarers.

This article includes extracts from articles discussing the costs of piracy, the oil industry as the No 1 target of piracy, issues relating to private security firms and the approach of the insurance industry that cautions “Shipowners should also ensure that the embarkation of additional security personnel does not place them in breach of SOLAS safety equipment certificate requirements.”

It includes articles by Laurence Smallman, a defense research analyst at RAND Corporation, on why it is so difficult to stop piracy and how “Piracy Pays” who tells us that “Piracy can be considered a symptom of a much wider malaise—that of persistent maritime disorder. This disorder may arise from the interplay of many factors that can be grouped under the broad headings of governance, society, and economy” and, “International business practices encourage piracy in the Gulf of Aden and work against national and international interests. The business community needs to examine its practices or piracy will continue to flourish.”

The post closes with an article by Amitai Etzioni published in the Winter issue of the Canadian Naval Review suggesting “that the human rights extended to (these) pirates were at least initially interpreted in such an expansive way that they prevented proper attention to two basic common goods: the safety and livelihood of civilians; and the right to freedom of navigation in international waters.”

The Human Cost of Somali Piracy The following is from the press release announcing this study:

As violence against seafarers by Somali pirates escalates, a new study has been completed that provides new insights into this issue. The study was commissioned by the Oceans Beyond Piracy Project, a group of maritime experts are especially worried about the lack of public concern. Thousands of seafarers have been subjected to gunfire, beatings, extended periods of confinement and, in some cases, torture in the Indian Ocean and Gulf of Aden at the hands of their captors. The study, The Human Cost of Somali Piracy, is to be launched on 6th June at Chatham House in London.

The study’s findings indicate that during the course of 2010:

  • 4185 Seafarers were attacked with firearms and Rocket Propelled Grenades.
  • 342 Survived Incidents in Citadels (ships’ reinforced security rooms).
  • 1090 Seafarers were taken hostage.
  • 516 Seafarers were used as human shields.

The cost to the Somali community is also concerning. Piracy affects food security and endangers Somali youth. In spite of the violent nature of these crimes, the new study says the human cost of piracy is still underreported and misunderstood by the public. “There is very little reporting of the personal violence against seafarers in the waters off Somalia”, says Kaija Hurlburt, lead researcher for the OBP study. “We have found strong evidence that over a third of the seafarers that were held in 2010 were abused, and the trend is looking more ominous this year. The lack of reporting prevents the true cost from being understood by the public.”

The new study notes that the economic cost of piracy is now well-known, but it makes clear that the extent of the human cost is much less well-known and understood. According to Per Gullestrup, the C.E.O. of a shipping company, the Clipper Group, “Somali piracy has a tendency to be discussed in economic terms, but the real issue is the untold misery and trauma imposed on our colleagues at sea and their relatives by the Somali criminals. We should be very concerned about the lack of concerted action by the global community in dealing forcefully with this problem.”

The Oceans Beyond Piracy Project is sponsored by One Earth Future Foundation (OEF). OEF is a private foundation located near Boulder, Colorado in the United States that is committed to seeking effective solutions to emerging governance challenges.

OEF’s first project is the Oceans Beyond Piracy Project, a collaborative effort that seeks to engage and mobilize maritime stakeholders affected by piracy.

Download the full Study Report

 The costs of piracy

Publications on the subject of piracy have estimated that piracy off Somalia and in the Indian Ocean has to date cost the global community somewhere near $10 billion; that average ransoms for ships grew from $150,000 to $5.4 million between 2005 and 2010; and, that there were a record 98 attacks between January and March in this year alone1.

There are additional costs as well: having ships out of service, the deployment of naval vessels from a number of countries, tankers and freighters needing to take long detours to avoid danger zones, holding court cases and incarcerating the pirates.

Many countries have deployed warships to the Indian Ocean in order to thwart attacks. At any given time, there are up to 30 vessels in the water to guard cargo ships passing through, including vessels from the European Union, North Atlantic Treaty Organization, Combined Taskforce 151 and companies safeguarding their own cargo.

The European Union’s budgeted amount for patrol vessels totaled $450 million in 2009. Safeguarding cargo through the Gulf of Aden costs an estimated $1.3 billion per year, according to RAND Corporation’s piracy expert, Peter Chalk.

The costs to outside nations are mounting. However steep the costs of an armed escort might be, Chalk said cargo vessels continue to sail near Somali shores. The route remains a quicker and cheaper option than alternatives which could take up to 20 extra days and cost an additional $1.5 to $2 million for cargo shipment.

“The risks are still not sufficient enough to make it economically worthwhile to bypass the Gulf of Aden,” Chalk said.

When vessels are taken hostage, the shipping companies and cargo owners chose whether or not to pay the ransoms demanded for the boats’ release. Governments have not publicly assisted with ransom payments. Some argue there ought to be a ban on shipmasters paying for the release of their vessels, as ransoms provide money for criminal activities. However, the fees demanded by pirates are less than the wholesale cost of losing cargo. And when boats are not moving, they cannot make money.

There are substantial losses when vessels are kept inactive for months. The cost of one ship held hostage for two months averages $3 million. This includes “loss of hire, damage to the vessel and the cost of recovering the ship, including the payment and delivery of the ransom,” Mukundan said. Some companies opt for kidnapping insurance when crossing the Gulf of Aden. “From their increased premiums and profits, you can extrapolate the damage to the shipping industry,” said Osiro. However, no economywide impact study has been done for the regional countries.

War binder insurance coverage can cost about $20,000 each year, whereas insurance premiums cost $500 in 2007. This excludes coverage for ransom payments. Last year the average ransom payment equaled $2 to $3 million. These amounts have more than doubled over the past 22 months, according to Chalk. Recently, $10 million was paid to release a South Korean freight, the largest known naval ransom to date.

Chalk noted that kidnapping insurance has become a lucrative business and more companies are offering it as an option, which then brings down premiums because of increased competition in the markets.

There are about 20,000 transits through the Gulf of Aden each year. The risk of attack ranges from 0.5 to 1 percent. According to the International Maritime Bureau, there were 420 incidents between 2008 and June 2010.

Somali piracy is unlikely to abate anytime soon. Since May 20th, there have been 14 reported incidents on the Red Sea, despite the monsoons, which many hoped would prohibit small attack boat activity. Osiro predicted many more attacks, and speculated that they are likely to become more indiscriminate as a result of the warships stationed in the Gulf of Aden and the Somali basin. Pirates still hold 405 hostages and 21 vessels for ransom. Military solutions will only lead to increased violence against captives, she said.

“The business of piracy is becoming more typical like the traditional organized crime,” Osiro added. “There is likely to be more human rights violations, illegal executions, illegal trials and the increasing role of armed private security providers.”

 Private Security Firms

The view from Germany:

Western security firms have now discovered piracy as a new business sector — one worth millions. Their portfolio of services includes making contact and negotiating with pirates, supporting relatives and preparing and delivering ransoms. Occasionally things go wrong, such as when Somalian officials recently arrested three Britons, two Kenyans and an American at the airport in Mogadishu. When they searched through the group’s luggage, they found $3.6 million in cash meant as ransom for two ships seized by pirates last year.

A wide-ranging international naval mission has not succeeded in stopping the pirates, with 163 attacks reported in the region in the first half of 2011. Now some in Germany are demanding a more official level of protection for merchant ships. Up till now, the use of private security guards on board German ships has been a legal gray area. But following recent calls to change Germany’s laws to allow the practice, some state governments are demanding German police officers and soldiers help protect merchant ships directly.

In the meantime, moves have been made to clarify the legal position of private security forces. It is estimated that a third of German ships operating off the east African coast already have such forces on board. “The traffic lights for deployment of (private) security forces have gone from red to amber, but are not green yet,” Hans-Joachim Otto, the government’s coordinator of maritime industry policy, said last week, stressing that an International Maritime Organization (IMO) vote next month is crucial to the final decision. “It’s a global problem and should get a global solution.”

German police trade unions, however, are hostile to what they consider a “privatization” of lethal force. “It’s a function of the state alone,” said Bernhard Witthaut, chairman of the German Police Union. He has called for Germany to set up a marine police unit manned by former German soldiers. But German commentators Friday were angry that shipowners were seeking official state help, with some pointing out that many of their vessels sail under a flag of convenience and do not follow existing security procedures.

The approach of the insurance industry:

The following has been extracted from “Hellas Highlights”, published by the UK P&I Club (Managed by Thomas Miller)

“There is no P&I cover restriction or prohibition per seon the deployment of on-board security personnel and appropriately trained and competent personnel may well assist in enhancing on board security procedures and response. Proper care and diligence should be exercised in relation to the selection of the appointed security company.

Until recently the view of most states and the industry, including the International Group clubs, has been that on-board security personnel should not be armed. The underlying reasons include the risks inherent in the use of arms by untrained or improperly trained persons. There may be an enhanced risk of loss of life or injury through armed engagement, the risk of encouraging the escalation of armed engagement and the use of more potent and warlike weaponry. There is however increasing pressure from some states to positively support the use of armed on-board security. The most recent indications from the US are that it is heading in this direction in relation to US f lag ships. In addition industry bodies are moving to a more neutral stance on the issue leaving the decision to individual shipowners.

A decision to use armed guards should, however, only be taken where justified by a voyage risk assessment2 and only as an addition to, and not in substitution for recommended self defence measures of the ‘Best Management Practices’ (BMP) and in no case should crew members be armed.

Flag state and port state restrictions, licensing requirements or prohibitions on arms on-board ships also need to be considered.3 Whether cover is prejudiced by having armed guards on-board is likely to be dependent on the cause of loss on a case-by-case basis. It is unlikely that cover would be prejudiced by the use or actions of unarmed guards, but intervention by armed guards could result in prejudice to cover if their use is in breach of f lag or port state regulations or if there is an applicable legal prohibition.

Shipowners should also ensure that the embarkation of additional security personnel does not place them in breach of SOLAS safety equipment certificate requirements.”

Further Reading:


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