Don’t let the dilapidated fishing boats or the rusting AK-47s fool you. Pirates mean serious business. A maritime industry group crunches the numbers and finds that the measures companies and governments take to avoid and combat the piracy threat cost between $7 billion and $12 billion every year.
The One Earth Future Foundation’s Oceans Beyond Piracy project documents exploding costs in piracy-related actions (.pdf). Ransoms paid to Somali pirates totaled $238 million in 2010 — the worst year for piracy on record, according to the International Chamber of Commerce. The average payout from ransoming a hijacked ship was $5.4 million last year, up from just $150,000 in 2005. (Check out thisanalysis of the Somali pirate business model from WIRED.)
And ransoms aren’t even the lion’s share of piracy’s costs to global maritime commerce. Insuring ships passing near piracy-prone areas like the Gulf of Aden costs between $460 million and $3.2 billion. Naval forces’ presence to protect merchant presence costs another $2 billion. Regional economies lose up to $1.25 billion annually. Re-routing ships to less pirate-prone waters costs up to $3 billion. (Hat tip:GCaptain.)
Oceans Beyond Piracy readily admits that its estimate is imprecise. Piracy doesn’t have a clear impact on every economic measurement related to global maritime shipping. The overall economic downturn imposes its own costs on everything from insurance to local business impact.
What’s more, it’s “difficult to quantify the value of volume of world seaborne trade in monetary terms,” according to the International Maritime Association. But it’s undoubtedly massive: one figure the association provides shows that the operation of maritime ships — and there are 50,000 commercial vessels on the seas — produces $380 billion in freight rates, itself equivalent to five percent of global trade. About 90 percent of all global trade comes to your local store from the seas — which helps explain how a ragged band of pirates operating off the Somali coast can have such a disruptive impact.
And that in turn explains the lucrative opportunities available anti-piracy businesspeople. BAE Systems is marketing one of their shipboard laser dazzlers as a tool to blind pirates before they can take your ship hostage. Private-security firms have begun defending ships from pirates, although that carries its own insurance costs. Ships that have been through the traumatic experience of a pirate-jacking, like theMaersk Alabama, have placed non-lethal acoustic weapons on deck to shoo pirates away.
All these are symptoms of the broader problem of instability and economic collapse in the Gulf of Aden. Navies from a variety of countries have dispatched ships to the gulf. But naval analyst Raymond Pritchett tweets that piracy has been allowed to fester because “$12 billion is chump change to the shipping industry.”
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