Somali pirates did not have a good year in 2011, seizing fewer vessels and hostages than in 2010, but the world still paid a heavy price for their activity because it costs far more to protect ships than to pay ransoms.

That is the conclusion of the Oceans Beyond Piracy report released yesterday, which estimated that Somali pirates – by far the world’s leading practitioners of high seas hijackings – cost the global economy just under $7 billion last year. Only $160 million of that was ransom money; the rest was due to higher insurance premiums, security and other anti-piracy costs that remain unchanged whether ships are hijacked or not, the report said.

“The costs of preventing piracy are indeed disproportionately high,” Anna Bowden, lead author of the report and program manager for its publisher, the One Earth Foundation, told The Media Line in an e-mail. “It is also a concern that 99% of these costs are recurring costs -- that is, costs that must be repeated each year to deter piracy … There needs to be a reassessment of the long-term sustainability of these costs.” 

Pirates plying the waters between the Horn of Africa and the coast of India account for just over half the attacks on ships worldwide, according to the International Maritime Bureau (IMB). Their victims range from super-tankers to private yachts, exacting a financial toll as well as a human one when they take hostages and kill.

The battle between the pirates and the world’s shipping industry and navies protecting it has not yielded a decisive victory for either side. The number of Somali attacks increased to 237 last year from 219 in 2010. Last August they launched their first attack on a vessel in territorial waters when they raid a vessel near the Gulf state of Oman. 

They also broke the record for biggest-ever ransom, $13.5 million for the release the Irene SL, a tanker carrying two million barrels of oil valued at $200 million. The average ransom collected by pirates jumped 25 percent to just under $5 million last year, according to the report.

But the number of successful hijackings fell to 28 from 49 while the 802 crew members taken hostage fell from the four-year high of 1,181 in 2010. By the final quarter of last year, the number of attacks was down to 31 from 90 a year earlier and the number of successful hijacking plunged to four from 19.

Captain Pottengal Mukundan, director of the IMB Piracy Reporting Center, attributed that to better onboard security as well as preemptive acts by the international navies patrolling the area.

But even if the pirates have been frustrated, the costs they impose on the world’s economy remain about the same.

Last year’s report put the cost at somewhere between $7 billion and $12 billion, but its author, Anna Bowden, said this year’s estimate was based on better information and therefore more exact. As a result, she said, the 2010 and 2001 figures are probably about the same.

Where does the money go?

The biggest chunk, some $2.7 billion, goes to higher fuel costs as ships increase their speed in pirate-infested seas. Another $1.3 billion goes to pay for the navies patrolling the area and another $1.1 billion for security equipment and armed guards on the vessels themselves. The rest goes to insurance ($635 million), re-routing vessels along India’s west coast (up to $680 million) and “danger pay” for sailors ($195 million).

“Pirates earn $160 million per year, while the cost for insurance is four or five times higher. You could argue that insurance companies make more money from piracy than the pirates themselves,” Jan Stockbruegger, an expert on piracy at the African Studies Centre Leiden, told The Media Line.

There is a human cost of piracy too. Eight people were killed by pirates last year, the same number as in 2010. But hostages are being held for increasingly long periods as ransom payments are taking longer to negotiate. Oceans Beyond Piracy said it took an average of 178 days for terms to be reached and the vessel released.

Indeed, the pirates have come to recognize the value of the crew as a profit center. In what the Oceans Beyond Piracy report called “a worrying development in the ransom business model,” pirates have begun to focus their attention on people rather than ships.

In one case, pirates released the vessel after getting their payment but kept some of the crew hostage for more money. In other cases, the captured ship was abandoned while the crew was taken ashore in Somalia, where pirates have demanded a ransom for their release. Recently, pirate-related gangs have taken to kidnapping humanitarian workers and tourists on land in Kenya and Somalia.

Stockbruegger, who also helps run the blog Piracy Studies, said that in many cases the pirates were taking hostages to trade for their imprisoned colleagues or compensation for pirates who were killed.

“Pirates definitely recognize that the value of their ‘business model’ lies in the livelihoods of the crew members, rather than the ship,” said Bowden.

Stockbruegger said a purely military response to piracy do not offer a sustainable solution to the problem “We don’t really know how to contain piracy. The military can’t do it in the current makeup and the same holds true for the shipping industry. They can reduce success rate but they can’t stop it,” he said.

The answer is to help stabilize the situation on the ground in Somalia, whose lawlessness and economic distress gave birth to piracy to begin with, said Stockbruegger. One way of doing this would be to crack down on the illegal fishing off Somalia’s coast, which has deprived people of their traditional living and forced many into piracy. Another, he said, would be to develop local government and give Somalis the tools to enforce their fishing rights.

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