The costs of piracy mount

Published 12 November 2009

Shipping companies report only a fraction of the actual cases of piracy for fear of their ships being impounded for long periods or because they simply do not want to pay the resultant higher insurance premium; the International Maritime Bureau (IMB) puts losses from piracy in 2008 alone at some €13 billion

Marine piracy continues to be a serious risk for shipping companies, sailors, cargo owners, and insurers. According to the International Maritime Bureau (IMB) in London, pirate attacks are an almost daily feature.

Ajith Kumar writes that modern day pirates are armed with state-of the-art weapons and experts suspect that they are also supported and trained by terrorist organizations. They comb coastal waters in high-speed boats. Surprise is the most important element in their raids. They operate both in ports and on the open sea. The dividing line between piracy and terrorism is becoming blurred and the danger of terror at sea is growing too. Political terror plays a role in hotspots like Somalia. Whatever the motivation, pirates prowl waters all around the world but Somalia is the area of greatest danger.

Kumar writes that ships are sitting ducks at sea. It is difficult to stop pirates these days, as ships and their crews are not equipped to defend themselves, says an Indian Navy pilot who participated in action in that area.

 Munich Re, the international re-insurer has been observing the development of this risk on the world’s oceans for a long time and has now published a report that analyses the dangers emanating from piracy and marine terrorism and explains the legal position at national and international levels. It highlights underwriting aspect and describes ways of minimizing the risk. The report says that even if piracy accounts for a very small portion of the marine insurance business, the potential perils are enormous. When a ship is attacked, the hijackers frequently just lock the crew in the hold and leave them to their fate. If the “rudderless” ship then collides with a tanker, the losses could be enormous.
Piracy usually occurs in areas without effective government control or where corruption is rife. There are estimated to be over a thousand pirates operating off the Somali coast.

While private yachts and boats can travel in convoy to avoid notorious pirate areas, commercial shipping has no simple safeguards. Tight time schedules, unchanging shipping routes and the scale of some vessels, like the skyscraper-long oil tankers that are hard to guard against intruders make it tough to maintain security on the high seas.
About 48,000 vessels pass through waters around Somalia each year. The pirates who lie in wait picking off yachts, freighters and fully laden tankers, are very different from the old pirate image. Armed with missiles and rockets, they have established a haven in northern Somalia, and send out speedboats to seize ships and crews for ransom. The attacks are often coordinated from a captured vessel disguised to look harmless.

Keeping statistical records of piracy is very difficult. Shipping companies report only a fraction of the actual cases for fear of their ships being impounded for long periods or because they simply do not want to pay the resultant higher insurance premium. The IMB puts losses from piracy in 2008 alone at some €13 billion.

Kumar notes that piracy off Somalia has led to a shocking hike in shipping insurance of at least 30 percent. Preventive measures and effective pursuit of the pirates by governments and authorities will only be possible once a clear legal basis is in place. There is clearly an urgent need for action in this respect. The success in combating piracy in the Malacca Straits is testimony to the effectiveness of close cooperation between the coastal states, their police forces and the armed services.

As Somalia, a country without a functioning government for the past seventeen years, sinks ever deeper into poverty, violence and lawlessness, the attacks have grown in number and daring, becoming a main source of income for the gangs terrorizing the country.

The UN Security Council has authorized warships to enter Somali water to combat piracy, and recently, European ministers, in response to calls by France and Spain, agreed to set up a unit to coordinate the fight against this terrorism at sea.

This year the IMB has reported an “unprecedented rise” in maritime hijacking. So far, 294 attacks, including close to 34 successful hijackings, have been reported. The number of reported incidents has surpassed the total reported in 2008. The majority have taken place off the coast of Somalia.

The Independent recently reported that Gulf banks are being used by organized pirate syndicates to launder millions of dollars taken as ransom from vessels hijacked off Somalia. Investigators hired by the shipping industry told the newspaper that around $80 million was paid out by shippers in 2008, much of which found its way to piracy “godfathers” based in the Gulf and African countries such as Kenya.