Less than a decade ago Jack Martin, a private agent who worked for insurance companies and banks to recover stolen and hijacked ships and cargoes, wrote, “Maritime piracy is a threat neither to the USA nor to vital shipping lanes. … The publicity surrounding maritime piracy has exaggerated its importance and distracted attention from the underlying problem of malpractice in shipping. … Although not everyone in shipping is guilty of exploiting the situation, malpractice is not confined to ship owners but extends throughout shipping, through agents, brokers, ship registries, finance and insurance.” [“Maritime Piracy, Fraud and Smuggling in Asia Pacific,” draft paper, 27 June 2003] I suspect that fraud and malpractice are still major sources of losses for insurance companies and banks. Piracy, however, is now also making its mark. Vijay Sakhuja agrees with Martin that maritime theft and fraud do pose a serious challenge to the world’s maritime supply lines [“Security threats and challenges to maritime supply chains,” United Nations Institute for Disarmament Research, 2010]. He also adds piracy, terrorism, illegal drug trafficking, gun-running, human smuggling, fraud, illegal fishing and pollution to the list of things that can disrupt maritime supply lines.

When Martin wrote that piracy wasn’t a big deal back in the early 2000s, he was correct. Sakhuja reports that in 2006 the International Maritime Bureau (IMB) reported just 20 piracy issues around Somalia and the Gulf of Aden. By 2008, however, the IMB reported a five-fold increase to 111 attacks. By 2009, the number of attacks had jumped 196 attacks on shipping with 46 vessels being hijacked and 857 crew members being taken hostage. “Despite an international effort to ensure safe passage through the world’s most treacherous waters,” writes J. David Goodman, “pirates escalated their attacks in 2010 for the fourth straight year, striking more ships and taking more hostages last year than in any year on record, according to an annual report on piracy.” [“Piracy Reached Record Level in 2010, Monitors Say,” The New York Times, 18 January 2011] Last year, according the IMB, 445 ships were attacked, 53 ships were hijacked, 1,181 people were taken hostage and 8 were killed. A new age of piracy has begun. Sakhuja writes:

“Pirates have been active in Asia (South China Sea, South-East Asia and South Asia), the Persian Gulf, Africa (the Horn of Africa and the west coast), the Caribbean and Latin America. In recent times South-East Asian waters, particularly the Straits of Malacca, and the Gulf of Aden in East Africa have been the hot spots of sea piracy and attracted international attention.”

Of those areas of activity, Goodman reports “the most dangerous waters remain those off the coast of Somalia. Ninety percent of ship seizures occurred there last year, and at year’s end at least 28 vessels bearing 638 hostages were still being held for ransom.” In a comprehensive article on Somali pirates, Robert Young Pelton asserts that the reason piracy is on the rise is because it is so lucrative. “Piracy is a crime,” he writes, “but it is above all a business, and right now it’s a high-volume one.” [“Somali Pirates’ Rich Returns,” Bloomberg BusinessWeek, 12 May 2011] He continues:

“Business is booming, in part, because ransoms keep getting larger. On Apr. 7, Intertanko, an organization of independent tanker owners, reportedly paid $13.5 million for the release of its Very Large Crude Carrier Irene SL, topped up with 1.8 million barrels of Kuwaiti crude. The $200 million worth of oil didn’t interest the hijackers. Instead, they used the 1,000-foot-long tanker as a destroyer-class warship. European Union Naval Force, or EU Navfor, which tracks piracy from its U.K. headquarters, reported that the Irene SL pulled up alongside freighters as pirates fired down on their victims from the castle-like heights of the tanker’s hull. To score their $13.5 million payout, the pirates held the Irene SL‘s 25-man crew for 58 days. That two-month investment netted them a 26,900 percent return on estimated expenses of $50,000.”

Pelton’s article is fascinating read and I recommend reading it in its entirety. It is also accompanied by some terrific graphics, like the 12-steps Somali pirates use from capture to payment and a 2011 piracy map. As I have noted in the past, Somalia is the poster child for failed states. The world knows that Somalia is a problem, but their seems to be little will to do anything about it. “[Mohammed Abdulahi Omar Asharq, foreign minister in Somalia’s transitional government,] said … he doubted the international community had the will to tackle piracy and said his country’s people felt ‘abandoned’ by the world.” [“World ‘Abandoned’ Somalia,” by Angus McDowall, The Wall Street Journal, 18 April 2011] McDowall continues his report:

“Speaking in Dubai at an antipiracy conference [Asharq] … rebuked foreign companies for paying ransoms to pirates, averaging $4 million a hijacked ship, which means piracy ‘is getting worse.’ ‘The Somali government rejects in the strongest possible terms the payment of ransoms,’ he said. … He said it was ‘morally indefensible’ that the world had only responded to the threat of piracy with containment while taking more robust action in other countries that posed a threat to stability.”

The “containment” policy discussed by Asharq involves an international naval presence in the Gulf of Aden, between the Horn of Africa and the Arabian Peninsula. According to Goodman, “The number of attacks there were cut in half, to 53 last year from 117 in 2009. The number of successful hijackings also dropped, to 15 from 20 in 2009.” Navy flag officers from participating nations “point to the deployment as a promising example of international cooperation. Although there is no one overall commander, international efforts are coordinated through monthly meetings and a secure Internet chat room.” [“More than piracy drives naval buildup,” by Peter Apps, Washington Post, 24 October 2010] Apps continues:

“Some complain that some of the emerging navies are too focused on safeguarding national shipping and could be used more effectively if coordination were better. Most emerging nations concentrate on escorting ships with their national flag, though India is particularly keen to stress that it has escorted vessels of all nationalities. … Overall, shippers say the naval buildup is good news. … But some see the rush of warships to the region – which largely began in 2008 after the hijacking of a Saudi oil tanker and a Ukrainian ship carrying military tanks – as partly fueled by a growing international rivalry. ‘I don’t think it necessarily has to be one or the other,’ said the Naval War College’s Gvosdev. ‘It can be both.’ … For those concerned by rising international tensions over currencies, commodities and cyber-warfare, Indian Ocean rivalries could be another potential flash point.”

As counterintuitive as it may seem to some, fighting pirates at sea is not the place to attack the problem. The oceans are too large and the ships patrolling them are too few. Goodman concludes:

“But with dozens of naval ships, including those from the United States, patrolling the gulf, many pirates appear to have simply gone elsewhere, extending their reach hundreds of miles from shore into the Indian Ocean and as far south as the Mozambique Channel, and menacing ships across an unprecedented expanse of water, according to the maritime bureau. In many cases, shipping companies have made the cold calculation that hijackings — even those that result in millions of dollars paid in ransom — are rare enough to be considered a cost of doing business. Higher ransoms, in turn, allow pirates to purchase better equipment and pay more effective recruits. ‘Success begets success,’ said Nikolas K. Gvosdev, professor of national security studies at the United States Naval War College. … Captain [Pottengal Mukundan, director of the IMB], praised the efforts of the navy patrols but said governments need to refocus on getting some administrative structure in Somalia. ‘Unless that improves,’ he said, ‘no matter what we do at sea to contain the problem, nothing will happen.'”

Vice Admiral Mark Fox, commander of the U.S. Navy’s Bahrain-based Central Command fleet, believes that “the U.S. and its allies should put more pressure on Somali pirates on shore, before they reach commercial ships off the Somali coast.” [“Admiral calls for counterterror approach to piracy,” by Lolita C. Baldor, Associated Press, Boston Globe, 26 January 2011] According to a blogger who calls himself Moby-Dick, “Piracy in the Indian Ocean has now become the single greatest threat to the movement of goods internationally. It costs the world between US $7 billion and US $12 billion dollars per year.” [“Billions of dollars lost through piracy in Indian Ocean,” International Maritime Forum, 5 May 2011]. The best estimates that I have seen place losses last year at around $8 billion.

In addition to paying ransoms, insurers have increasingly urged shipping companies to invest in preventive measures to protect ships [“The Arms Race Against the Pirates,” by Ira Boudway, Bloomberg BusinessWeek, 21 April 2011] Boudway writes:

“To deal with this 21st century version of an ancient threat, ship owners, often at the behest of their insurers, have resorted to tactics old and new—from razor wire, fire hoses, and safe rooms to long-range acoustic devices, laser dazzlers, and, most recently, armed guards. They have little choice: While international naval forces have stepped up their patrols—creating an Internationally Recommended Transit Corridor through the Gulf of Aden in 2009—pirates have responded by widening the scope of their operations, launching their skiffs from mother ships far out at sea as well as from the coast. As a result, the shipping industry has largely been left to fend for itself in some 2.8 million square miles of ocean. ‘The Indian Ocean is basically the rawest Wild West,’ says John S. Burnett of Maritime & Underwater Security Consultants (MUSC) in London.”

Just like settlers urged the U.S. Government to send in marshals and troops to tame the Wild West, ship owners are now urging governments to clean up the piracy problem [“Shipping Companies Urge Governments to Tackle Piracy,” by Neena Rai, The Wall Street Journal, 9 May 2011]. Rai reports:

“Ship owners are stepping up pressure on governments world-wide to take a stronger role in policing the waters off Somalia and prosecuting hijackers, saying lax enforcement is encouraging attacks and helping pirates extend their operations farther into the Indian Ocean. … ‘National governments hold the key to resolving this crisis. Their brief to the naval forces has, in most cases, been simply to deter and disrupt unless it involves a national interest,’ said Graham Westgarth, president of Teekay Marine Services, a unit of Teekay Corp., the world’s largest owner of medium-sized crude oil tankers. ‘Prosecution is vital. Even when caught red-handed by naval forces, 80% of pirates are released again to attack,’ Mr. Westgarth adds, citing figures compiled by the International Association of Independent Tanker Owners, or Intertanko.”

Losses due to hijacking and ransom payments are not the only costs being added to the supply chain. Rai explains:

“Ship owners also say that the threat of piracy has increased voyage times, as ships use safer, but significantly longer, routes. About 40% of the world’s oil supply is shipped through the Indian Ocean, an area where Somali pirates are dramatically increasing their presence. ‘Vessels now sail from the Arabian Gulf, then very close to coast of India before they go around Africa,’ said Richard Arnesen, Head of Tankers at Oslo-based oil shipping broker Imarex Asa. ‘It’s adding an extra four to five days in voyage times, but it’s safer than sailing straight down the Indian Ocean,’ he said.”

Increased costs are also being passed along to customers in the form of surcharges [“Piracy Spurs Maersk to Raise Fee,” by Flemming Emil Hansen, The Wall Street Journal, 9 May 2011]. Hansen reports:

“Reflecting higher costs stemming from a jump in piracy off the Somali coast, A.P. Moller-Maersk AS raised its emergency-risk surcharge. Maersk’s container-freight division increased the fee on each 40-foot container shipped through risky waters to $200–$500 from $100–$400, to pass on some of the company’s rising costs to customers, said Erik Rabjerg Nielsen, the division’s head of daily operations. He estimated that Maersk’s antipiracy costs will rise to $200 million this year from $100 million last year as ships are forced to sail faster and longer to prevent hijackings and crews receive doubled salaries as compensation for the added work.”

Maersk’s Rabjerg Nielsen stated the obvious when he said, “Piracy is bad for the shipping industry [and] it’s bad for global trade.” There is no romance associated with this latest age of piracy. Disney will never open a theme-park attraction or make a family movie about the exploits of today’s pirates. Although few people seem willing to admit it, the only way to rid the world of today’s pirates is to mount land-based operations against them. Politicians in Somalia have said they would welcome such operations.