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Maritime piracy costs global community up to $12 billion a year

At the end of 2010, around 500 seafarers from more than eighteen countries were being held hostage by pirates.

During the same year, around $238 million was paid in ransoms to Somali pirates. Piracy doesn't only affect the world's largest trade transport industry; it actually costs the global community a lot more than just ransoms and stolen cargo.

Despite piracy on the high seas being one of the world's oldest crimes, the maritime industry has failed to figure out a way to deal with it.

According to the Oceans Beyond Piracy (OBP) project, contemporary international reactions to piracy follow similar lines to early international law, which declared it the duty of states and their navies to deal with pirates.

But, despite more than thirty countries (including the US) contributing to the navies patrolling the trade lanes around the Horn of Africa, pirates operating in the waters off the coast of Somalia are still doing a roaring trade.

Although the navies' presencemanaged to reduce the rate of successful hijackings, the pirates doubled the number of attacks and expanded their playground, so the actual number of successful hijackings increased.

Furthermore, hijacked vessels are reportedly being used as "mother ships". This not only enables the pirates to expand their operating area, but also gives them some degree of protection since a naval vessel would hesitate to fire on pirates aboard a ship full of crude oil.

OBP says that, between 2004-2009, only 15% of global piracy attacks occurred off the coast of Somalia But in 2009, Somali pirates were responsible for 53% of reported attacks around the world, including 47 hijacked vessels and 867 seafarers held hostage.

The cost

  • Ransoms: Over the past five years, Somali pirates' ransom demands have increased from an average of $150,000 in 2005 to $54 million in 2010. The largest known ransom payment was for the South Korean oil tanker, Samho Dream, for which a record $95 million was paid in November 2010 Somali pirates' income for the whole year 2010 was around $238 million.
  • Insurance: Insurance cover includes war risk, kidnap and ransom (K&R), cargo, and hull. The most significant increase in premiums has been in war risk and K&R With the Gulf of Aden classified as a war risk area by Lloyds Market Association (LMA) Joint War Committee in May 2008, it is therefore subject to these specific insurance premiums OBP estimates that the total excess costs of insurance due to Somali piracy are between $460 million and $32 billion per year.
  • Naval forces: The cost of naval operations off the coast of Somalia is around $2 billion a year.
  • Prosecutions: More than 750 Somali piracy suspects have either been tried or await trial in more than eleven countries Working on an average cost of prosecution, OBP estimates that the cost of piracy trials and imprisonment in 2010 was around $31 million.
  • Anti-piracy organisations: A number of intergovernmental organisations dedicated to working towards a solution for maritime piracy have a total budget of around $245 million.
  • Re-routing ships: "Low and slow" vessels, which are prime targets for pirates, are often re-routed to avoid risk zones The excess cost of re-routing these ships is estimated to be between $24 billion and $3 billion per year.
  • Protection: Deterrent and security equipment costs ship owners between $363 million and $25 billion per year.

Total direct costs of piracy in 2010 is thus estimated to be between $7 billion and $12 billion.

But there are secondary costs as well:

  • Piracy costs Egypt about $642 million a year in lost revenue from Suez Canal fees, as ships are re-routed to avoid the Gulf of Aden.
  • The trade impact of piracy costs Kenya and Yemen around $414 million and $150 million a year respectively.
  • Losses to Nigeria's oil and fishing industries cost the country around $42 million a year.
  • Losses to its fishing and tourism industries cost the Seychelles around $6 million a year.

Total secondary costs to regional economies: $125 billion a year

And we haven't even started trying to quantify "loss of use" and "loss of man-hours" while ships and their crew are held hostage, often for a few months, while shipowners and pirates negotiate a price for their release..

The One Earth Future Foundation says that the scourge of piracy will continue to increase because there is no effective international system to deal with the problem.

Which is why the Foundation established the Oceans Beyond Piracy project, which is attempting to develop a robust and global system to manage piracy through collaboration with stakeholders from industry and governments.

[Sources: One Earth Future Foundation, Oceans Beyond Piracy]

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