Sea Transportation: The Pirate Business Is Bad And Getting Worse


April 10, 2012: After two years of immense prosperity, the last year has been a disaster for the Somali pirates. For example, in the last eight months only six ships have been captured, compared to 36 ships in the same eight month period a year ago. Pirate income is down 80 percent and expenses are up. Pirates have to spend more time at sea looking for a potential target, and when they find one they either fail in their boarding efforts (because of armed guards or better defense and more alert crews) or find anti-piracy patrol warships and armed helicopters showing up. Unlike in the past the patrol now takes away the pirates weapons and equipment, sinks their mother ships, and dumps the pirates back on a beach. The pirates claim that some members of the anti-piracy patrol simply kill pirates they encounter on the high seas (some nations have admitted doing this, at least once, in the past). But no one does this as official policy and the rules are still basically "catch and release." The big change is that the patrol has become much better at detecting pirates on captured fishing ships and shutting these pirates down. Often the pirates bring along the crew of the fishing ships, to help with the deception. But the patrol knows which fishing ships have "disappeared" and quickly identify those missing ships they encounter and usually find pirates in charge. The anti-piracy patrol also has maritime reconnaissance aircraft that seek to spot mother ships as they leave pirate bases on the north Somali coast and direct a warship to intercept and shut down those pirates. The pirates have been losing a lot of equipment and time and money needed to pay for it.

Ships are better protected, with many of the most valuable ones carrying armed guards. Two years ago the first of these armed guards killed a pirate while defeating an attack. There have been many more pirate deaths since then, a lot of them apparently unreported (to avoid possible legal, PR, and retaliation problems). The retaliation has manifested itself but mostly in terms of threats, not additional deaths and injuries among ship crews.

Pirates have responded by finding new targets (ships anchored off ports waiting for a berth) and using new tactics (using half a dozen or more speedboats for an attack). The pirates still have a powerful incentive to take ships. In 2010, for example, pirates got paid over $200 million in ransom. The year before that it was $150 million. Most of that was taken by the pirate gang leaders, local warlords, and the Persian Gulf negotiators who deal with the shipping companies. But for the pirates who took the ship, then helped guard it for months until the money was paid, the take was still huge. Pirates who actually boarded the ship tend to receive at least $150,000 each, which is ten times what the average Somali man makes over his entire lifetime. Even the lowest ranking member of the pirate gang gets a few thousand dollars per ransom. The general rule is that half the ransom goes to the financiers, the gang leaders, and ransom negotiators. About a quarter of the money goes to the crew that took the ship, with a bonus for whoever got on board first. The pirates who guard the ship and look after the crew gets ten percent and about ten percent goes to local clans and warlords, as protection money (or bribes).

There is no shortage of eager young Somalis seeking to join the pirate gangs. Most will not get much more than weapons, food, and the use of a speed boat. If they want to make more they have to capture a ship and hold it for ransom. The dozen or so pirate gangs, led by men who were local warlords or tribal leaders, get really rich. There are plenty of local warlords and merchants who will finance new pirate gangs, in return for up to 50 percent of whatever that gang gets in ransoms over a certain period. The money men will advance several hundred thousand dollars, often selling the pirates needed weapons and equipment, as well as providing technical advice. For the pirates and their backers, it's a business. But now business is bad and getting worse.

For the last four years Somali pirates have been operating as far east as the Seychelles, which are a group of 115 islands 1,500 kilometers from the African coast. The islands have a total population of 85,000 and no military power to speak of. They are defenseless against pirates. So are many of the ships moving north and south off the East Coast of Africa. While ships making the Gulf of Aden run know they must take measures to deal with pirate attacks (posting lookouts 24/7, training the crew to use fire hoses, and other measures to repel boarders: hanging barbed wire on the railings and over the side to deter boarders), this is not so common for ships operating a thousand kilometers or more off the east coast of Africa. Ships in this area were warned last year that they were at risk. Now, the pirates are out in force, demonstrating that the risk is real.

But these cargo ships and tankers are big business. The big ones cost over $50,000 a day to operate and are at sea most of the time if they want to make a profit. The crews are small (rarely over 30 people) because the ships are highly automated. Extra insurance for pirate risk can run several thousand dollars a day, or more, depending on exactly what route the ship takes and how much security you want. These rates keep changing, and generally increasing, as the pirates change tactics. If a ship wants to guarantee safety it can pay up to $50,000 a day for it (insurance, security personnel on board, extra equipment). Most ships buy some insurance and take their chances. They do that because less than three percent of ships are even attacked, or threatened, with attack.

The pirates are media savvy and are pushing the line that they are simply patriots, getting payback for the foreigners who illegally fish in Somali waters (common) and dump toxic wastes off the coast (rare, but makes for great headlines). There are over a thousand gunmen attached to pirate gangs in the north, although the group operating off the east coast pay "taxes" to al Shabaab for the use of several fishing villages. Most of the ships seized in the last two years were taken closer to the Yemeni coast, thus showing that the entire Gulf of Aden (between Yemen and Somalia, with the Indian Ocean to the east and the entrance to the Red Sea to the west) was subject to pirate attacks. Despite the scary headlines this has generated, world trade or even traffic to the Suez Canal (at the north end of the Red Sea) is not threatened. While ten percent of world shipping traffic goes through the Gulf of Aden each year, most of it is in ships too fast for the pirates to catch and too large for them to easily get aboard. These ships pay higher fuel costs (for the high speed transit), higher insurance premiums, and two days of "danger pay" for their unionized crews and that's it. This increases the annual operating costs of these ships by a fraction of one percent. But for smaller, and slower, freighters mostly serving local customers, the pirates remain a problem. These ships tend to be owned by African and Arab companies and manned by African and Arab crews.

In dealing with a piracy problem like this you have three main choices. You can do what is currently being done, which is patrolling the Gulf of Aden and shooting only when you see speedboats full of gunmen threatening a merchant ship. The rule appears to be that you fire lots of warning shots and rarely fire at the pirates themselves. This approach has saved a few ships from capture, and the more warships you get into the Gulf, the more pirate attacks you can foil. But it won't stop the pirates from capturing ships. Establishing a similar anti-piracy patrol off the east coast of Africa would cost over half a billion dollars a year, at least.

A second approach is to be more aggressive and have your warships and helicopters shoot (pirates) on sight and shoot to kill. Naturally, the pirates will hide their weapons (until they are in the act of taking a ship) but it will still be obvious what a speedboat full of "unarmed" men are up to. You could take a chance (of dead civilians and bad publicity) and shoot up any suspicious speedboat or larger mother ship. Some of the pirates would probably resort to taking some women and children with them. Using human shields is an old custom and usually works against Westerners. More pirate attacks will be thwarted with this approach but the attacks will continue, and NATO will be painted as murderous bullies in the media. The anti-piracy patrol has become more aggressive but not trigger happy (unless fired on or ignored by pirates ordered to halt). The pirates have not tried to use civilians as human shields, if only because that would make it obvious that a fishing ship or small freighter was a mother ship.

The third option is to go ashore and kill or capture all the pirates, or at least as many as you can identify. Destroy pirate boats and weapons. This is very dangerous because innocent civilians will be killed or injured and the property of non-pirates will be damaged. The anti-piracy forces will be condemned in some quarters for committing atrocities. There might even be indictments for war crimes. There will be bad publicity. Recently the EU (representing most NATO nations) approved land attacks by their anti-piracy patrol forces. This is meant to destroy obvious pirate assets and to put even more pressure on the pirates. This pressure is working because businessmen in Somalia report that more of the newly wealthy pirates are seeking to move themselves, or at least a lot of their money, out of Somalia.

The bottom line is that the pirate attacks, even if they took two or three times as many ships in their peak year, would not have a meaningful economic impact on world shipping. Total cost to shipping companies (ransoms, extra fuel, security equipment, and services) is over $10 billion a year. For example, the international anti-piracy patrol in the Gulf of Aden costs $500 million a year, a fraction of a percent of the defense budgets of the nations involved. Politicians and bureaucrats can stand that kind of pain and will likely do so and refrain from doing anything bold in Somalia.




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