High-Seas Piracy and the Great Recession

Ryan Hagen, a prized Freakonomics research assistant, has previously worked as a research associate for N.Y.U.’s Center for Catastrophe Preparedness & Response. He has an interest in pirates that might reasonably be deemed obsessive.

INSERT DESCRIPTIONPhoto: Cliff

Somali pirates hijacked an American cargo ship on Wednesday, with the intention of holding the ship and its 20-man crew for ransom. Unfortunately for the pirates, the freighter’s first mate turned out to be the son of a man who teaches anti-piracy tactics. He helped lead the crew in a counterattack and in a few hours had retaken the ship from the pirates. The ship’s captain, however, is still being held hostage in a lifeboat, in a face-off with an American-guided missile destroyer.

It’s rare for a hijacked crew to fight off pirates who have already overrun a ship, so this story is a bright spot in the fight against piracy off the Horn of Africa. But it also shows how unruly Somali waters have become, despite an increase in international anti-piracy patrols.

The pirates have in fact stepped up their attacks, expanding to a swath of ocean four times the size of Texas.

“It’s a boom and bust economy down there,” Peter Lehr, a piracy expert at the University of St. Andrews in Scotland, told me. “The boom started last spring, with the hijacking of this French luxury yacht, Le Ponant, when suddenly these young militiamen realized a $2 million ransom was paid, and that led to a kind of gold rush there.”

While the pirate business has held up well so far despite the global economic downturn, it may cool off soon. Traffic through the Suez Canal — the western mouth of the sea lanes upon which Somali pirates prey — is already down 20 percent this year.

Canal traffic has been especially hard hit, in part because of the $600,000 toll the Canal charges for passage, and partly because of piracy. Aside from ransoms and skyrocketing piracy insurance rates, shippers routinely pay their crews double, as hazard pay, whenever they pass by the Horn of Africa. So there are simply fewer ships for pirates to target. And with shippers cutting costs, they may be less willing to pay the million-dollar ransoms that pirates have become accustomed to. That could discourage some pirates, Lehr says — or, conversely, drive up attacks, as the marauders hit more ships to make up for slumping revenue.

In any case, shippers are rerouting their cargo away from the Suez Canal and Somalia’s pirate-infested waters, since it’s getting cheaper to send ships the long way, around the Cape of Good Hope. Lehr says that could have its own unintended consequences: “In an ironic twist of things, the more ships you send around the Cape of Good Hope, the more frequent acts of piracy you’ll find on the West Coast of Africa.”

Indeed, pirates are already operating there, in the Gulf of Guinea near Nigeria. But so far, says Lloyd’s List journalist David Osler, the attacks have been concentrated on oil company vessels, not general shipping.

“The pirates there have more of a political motivation,” Osler says. “Some tribal groups are very upset that they’ve seen 50 years of companies like Shell, in their view, ripping them off for their oil. They’re putting up with the pollution, their fishing is being wrecked, and they’re not seeing any schools being built or any economic development out of it. So they’re looking for their cut.” That cut might come from hijacking a ship on its way to resupply an offshore oil rig, or from nabbing a group of rig workers heading in for shore leave.

Whether the recession and anti-piracy vigilance slows piracy or just spreads it around to new locales is hard to say.

“All we can do is curb the most flagrant acts, and then we will go on our merry way once again, because it’s simply more convenient, even for the shipowners,” Lehr says. Even a $2 million ransom can be cheaper for shipowners than worrying about delayed or spoiled cargo. It’s also cheaper than paying to outfit an entire shipping line with private security guards or sending the ships along longer, pirate-free routes.

With so much money at stake, sea piracy, it seems, is here to stay.

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  1. Rex Hodges says:

    It’s not just ransom. Hostage crew are often killed, raped tortured. National security is jeopardized. Place 8 U.S. Marines aboard each U.S. flagged vessel passing Somalia routes…End of Threat. Tax LLoyd’s with cost which would be a bargain compared with alternative risk or extended detour voyage.

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  2. Jason says:

    Nothing like a cost benefit analysis of: $2 million ransom versus spoiled bananas

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  3. David S says:

    A couple of questions:

    1. Does anyone know how many commercial vessels are in the area? (I’m trying to determine the ship density)

    2. Has the shipping industry considered convoys? Groups of ships are easier to protect.

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  4. Dolo says:

    Mr. Hodges, there are very few US flagged vessels going past Somalia. Private international shipping companies don’t use US flagged vessels because the taxes are so high, so the US flagged ships in international waters tend to be carrying relief supplies from the US government, and make up only a tiny percentage of international trade. Protecting only US flagged vessels would not solve the problem, and putting US marines on other country’s ships would be diplomatically problematic.

    Also, far from torturing or raping, the Somali pirates have thus far treated their hostages well, including cooking them meals in their own cuisines. There is a fascinating mix of ethnic restaurants on the Somali coast to support the feeding of hostages.

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  5. Adam says:

    I think some background on maritime law would be helpful. From what I heard on NPR the ships have a hard time defending themselves without being potentially classified as pirates themselves, hence the push for non lethal countermeasures.

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  6. Badin Fluence says:

    pay the comparatively small cost to add a couple more bodies to the ship to act as rotating lookouts, arm and train your sailors to fight back, and let them know that they are on their own – if they get overtaken, there will be no ransom paid and the ship will be recovered regardless of their survival. bet they take care of business then. allow them freedom to blast the pirates out of the water and eventually the danger will balance the potential reward to these scurvies and we’ll see the frequency diminish. keep up the hazard pay and provide incentives for getting trained up in methods of repelling an assault.

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  7. Dagny says:

    The solution to piracy was well known to any 18th century sailor: Bombardment of the ports pirates use by naval guns.

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  8. BONA says:

    I don’t understand why piracy is such a problem. Piracy has been an issue that governments have had to deal with since boats started carrying wealth. The problem has been more or less solved multiple times. In fact, the Navy was created to deal with pirates. Send Navy ships along with merchant ships and let them open fire at any ship that comes within x-distance to the ship. It has worked in the past and will work in the present.

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