commentary

(Bloomberg Government)

April 11, 2011

Kowtowing to Pirates' Ransoms Fuels Maritime Piracy

by Laurence Smallman

International business practices encourage piracy in the Gulf of Aden and work against national and international interests. The business community needs to examine its practices or piracy will continue to flourish.

Some 33,000 ships a year currently transport oil, gas, manufactured goods, raw materials and food through shipping lanes around Somalia. Pirates in the Gulf of Aden on the eastern horn of Africa have captured more than 1,600 vessels in those waters in the last five years. They now hold 27 ships for ransoms that range from $2 million to $5 million a ship.

Major shipping owners and the International Transport Workers Federation believe that to pay ransoms is the easiest option. Pirates working out of Somalia got $238 million in ransom money in 2010, up from $177 million in 2009, according to the nonprofit One Earth Future Foundation.

Given the high cost of arming or self-protecting every ship, many ship operators accept the risk of hijack.

Piracy Pays

With the enormous number of vessels that traverse the Gulf of Aden, the risk of a pirate attack is only about 0.5 percent. Still, some 580 crew members are currently being held, according to the International Maritime Bureau, with their ships in pirate dens in Somalia, a country where piracy pays far more than the average annual salary of $600.

The U.S. and other navies have attempted to ward off piracy, but the ocean is large and watchdog fleets can't keep pace with the plethora of motorized skiffs filled with desperate young men out to make a fortune. Security teams, increased lookouts and internal crew citadels have prevented some attacks.

The problem of piracy will continue indefinitely, partly because the maritime industry uses open registries to flag their ships under states with limited restrictions, including political control. This practice eludes U.S. and other national government policies, directives and laws prohibiting paying ransoms.

Some ship owners figure that though ransoms are large, their overall cost is small compared with other business expenses.

For example, annual card fraud in the U.S. was reported as $8.6 billion by the Aite Group in 2010. The costs of dealing with hijacks — ransoms, payments to negotiation teams, payments to banks to get small bills and move the money internationally, and for delivery of payments — was estimated at $456 million in 2010, according to One Earth Future. That cost was passed on to consumers.

Avoiding Delay

Paid fast, a ransom payment leads to early release, which many ship owners find preferable to protracted negotiation and then intervention by international forces that engender further delay. Time is money.

Left unchecked, Somali piracy threatens to interrupt the supply chain. The efficiency and effectiveness of the maritime trading system, upon which almost every facet of our modern life depends, is built on the ease and flexibility of free navigation.

Some companies have chosen to avoid the advantages of Suez transit. They route via the Cape of Good Hope south of Africa, which takes about two weeks longer. The extra time and fuel are considerations as fuel prices skyrocket.

Environmental Risks

International businesses and the maritime industry need to understand the implications of accepting piracy as a business cost. Piracy could lead to horrific environmental risks for Africa. All vessels have the potential to cause pollution if incompetently handled. The fuel from a large ocean-going merchant vessel cast aground deliberately or inadvertently by pirates could pollute extensive lengths of coastline.

Dramatically worse pollution would occur if a super tanker spilled its oil. A large-scale spill that polluted East African fisheries would lead quickly to continental hunger. Cleanup would be severely hampered by Africa's lack of resources. The effects would make the impact of the Deepwater Horizon spill seem minor by comparison.

The human cost to the crews and their families must also be considered, and for some this is paramount. There are very strongly held opinions among some owners and seafaring representative bodies that ransom payments are the correct, final response in the event of a successful pirate attack. And pirates will attack more robustly, including the thousands of smaller vessels for which ransoms, and recently murders, resulted.

Barbary Pirates

History holds some lessons. Barbary piracy peaked in the mid-1700s and remained a significant problem until 1830. The U.S. Navy was created to go after Barbary pirates, especially after the failure of tribute payments by the U.S. and European nations. Problems on sea persisted until France invaded northern Africa and provided effective governance on land. Somalia's sea disorder begins on land.

Unlike in the Barbary wars, the bulk of merchant ships today are in open registries, not under the flags of nations with large navies. Open registry nations Liberia and Panama don't have navies and can't protect merchant ships from piracy. International businesses shipping under those flags unfairly expect protection by traditional navies. There's little bridge between nations and international ship owners on this point.

Meanwhile, making piracy a business cost is unacceptable as part of a wider national policy for dealing with an international problem. Nations and international organizations have the right and responsibility to determine policy and lead action.

Instead of fanning piracy, international businesses need to heed policy. Ransoms in the short term can only lead to more problems in the long term.


Laurence Smallman is a defense research analyst at the nonprofit, non-partisan Rand Corporation.

This commentary originally appeared in Bloomberg Government on April 11, 2011.