Sea Transportation: Pirates Wait For Cost Cutting To Start

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September 20, 2013: Firms that provide piracy insurance for shipping companies believe that the current lack of success by Somali pirates will probably not last. Although it’s been over a year since the Somali pirates have captured a ship, some pirate groups limp along because they are still holding 97 sailors that no one will pay a ransom for. The sailors all served on ships operated by small shipping companies that did not have piracy insurance. The ship owners have abandoned their ships and crews, and the families of the sailors are too poor to offer enough money (over $100,000 per captive) to satisfy the pirates. If is feared that eventually the pirates will begin killing some of these captives to encourage someone to come up with the cash. The Somali pirates continue to capture some small uninsured ships that can be resold to legitimate users of Somali smugglers.

Since 2005, the Somali pirates have captured 149 insured ships and obtained over $300 million in ransom. But 2 years ago the captures got more difficult and eventually stopped. Many pirate gangs have disbanded in the last year, but several remain active and large ships are still occasionally stalked at sea by armed pirates.

Right now the pirates are stymied by an energetic international effort to make it very difficult for pirates to succeed. There is an international anti-piracy patrol off Somalia, which has over two dozen warships and more than a dozen maritime patrol aircraft monitoring the vast sea areas the pirates were once able to “disappear” into. No more. The large (well insured) commercial ships that the pirates long feasted off are now well prepared to detect, evade, or defend themselves from a pirate boarding attempt. Many of the more valuable ships now carry a half dozen or so armed security personnel, most of them former military and ready and able to shoot to kill.

The insurance companies point out that until the rule of law returns to all of Somalia (and pirate-friendly ports and anchorages disappear) the pirates will still be a threat. It’s costing seafaring nations, who supply the ships and aircraft for the anti-piracy patrol, over $7 billion a year to maintain these defenses. A lot of that cost is borne by the shipping companies in the form of additional security expenses for their ships and ultimately by shippers in the form of higher transportation fees. As more time passes with no pirate successes, there will be a temptation to cut back on the security efforts. That’s what the pirates are waiting for and the insurance companies know from experience that this is how the world works.

 


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