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.


Rex Hodges

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.

Jason

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

David S

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.

Dolo

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.

Adam

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.

Badin Fluence

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.

Dagny

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

BONA

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.

Abby Tucson, AZ

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

Abby Tucson, AZ

Or did she say, "...language...?"

Eric M. Jones

Law?....What law?

Abby Tucson, AZ

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!

Abby Tucson, AZ

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!

David Fredericks

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?

Charles, Philadelphia.

(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.

Read more...

pH1

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.

CNN

Dumb question: Why hasn't any of the American hostage negotiators considered lacing the food for the pirates with some sort of sleep medication? I am assuming the pirates and the American captain are still in high waters. If the Americans are providing food/water/batteries for the radio, seems like an easy way to end the standoff. Maybe I have been watching too many spy thrillers.

pcarlinnyc

I wonder what the world can do to make the pirates go away.

Guns or butter?

Hillary

pH1 - the choice is $100/container or a longer voyage. the suez canal fees are expensive and inefficient, but they're a tiny percentage of the total cost. I don't know about other shippers, but for me the time is worth more than the fee.

The Only Moderate

The ideal weapons system would appear to be helicopter gunships, such as Apaches or Cobras. Either the 101st Air Assault or 1st (Air) Cavalry can provide a combination of gunships and troop carriers that is both mobile and heavily armed.