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. Abby Tucson, AZ says:

    Is Osler descended from the Osler who worked out that phoney oil deal in Canada with Pforzheimer and my GGUnc to start the teapot whistling on the last crew of Pirates to tank the US economy? Ahoy there, mate! You’d know a Pirate if you saw one! I’ve been working this Pirate thing for six months and I swear we’re eventually going to see that light.

    “…Because words…are a virus…” Laurie Anderson

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  2. Abby Tucson, AZ says:

    Or did she say, “…language…?”

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  3. Eric M. Jones says:

    Law?….What law?

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  4. Abby Tucson, AZ says:

    Anyone see that series on PBS, “Carrier?” Did you figure out that they never engaged the enemy once during the entire Persian Gulf tour? You could see it on the crew’s faces. “This is BS!” They should get a medal for putting up with it. Now, we’re going to justify this immense drain on the Treasury by rooting out Piracy? Americans are the best Pirates on the planet. I’ll skip hyperbolizing the present and remind you of the way we decimated the British during the Revolution. Pirates waiting off their shores. Take that, Uncle George!

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  5. Abby Tucson, AZ says:

    Yesterday, a manufacturer told NPR they are going around the Cape of Good Hope rather than pay the 700K it costs to get through the Suez. Yo, ho, ho! Good for oil of us!

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  6. David Fredericks says:

    It’s hard to fathom why American merchants on giant cargo ships should be rendered helpless against small bands of pirates in tiny boats — especially knowing the certain odds for repeated hijackings.

    Why aren’t these cargo ships equipped with arned guards? Is there some sort of quid pro quo going on between owners and bandits?

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  7. Charles, Philadelphia. says:

    (1) Apart from a small and relatively highly paid officer corps, the crew of most foreign flagged merchant vessels are minimum-wage workers hailing from the poorest developing nations. The cost of hiring skilled mercenaries who are veterans of one or another of the world’s more respected armed forces is quite substantial relative to the wages currently paid to crew members.

    (2) The type of weaponry most likely to make an impression on pirates, e.g. RPGs or 20mm gatling/chain guns, is almost certainly not going to be allowed on a merchant vessel at any major port of call, and probably wouldn’t be allowed in the Suez canal either.

    Combining (1) and (2), it would be necessary to set up some type of organized system whereby guards and their weapons would be loaded onto merchant vessels in international waters before the danger area and then off-loaded in international waters before docking at port. It wouldn’t be impossible to set up such a system, but the complicated logistics would further drive up costs.

    My guess would be that although the media love stories about pirates, those rascals end up intercepting only a minimal fractional percentage of shipping. Currently, it’s probably cheaper to pay the odd ransom and/or higher insurance premium than it would be to set up the type of armed defense service I just described.

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  8. pH1 says:

    But why is egypt pricing canal access so ineffiiciently?

    Seems like an asset ripe for an auction process to maximize revenue in all economic conditions.

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