By Paul Crespo

A special guest post by Global Security Consultant and Political Risk ExpertPaul Crespo.  This is the latest post in the series.

With the growth of global commerce more businesses rely on maritime shipping to get their goods and raw materials to market.

The release of the Tom Hanks film “Captain Phillips” depicting the 2009 hijacking of the US merchant ship Maersk Alabama by Somali pirates, has reminded us of the threats to that shipping. US Navy SEALS successfully resolved that high-visibility ship hijacking, but how secure are the cargo ships that your international business relies on today?

Global Cost of Piracy

According to a study by Oceans Beyond Piracy, the cost of maritime piracy to the global economy in2012 was between $5.7 and $6.1 billion. This was a drop of 12.6% from about $7 billion in 2011, due mostly to a 70% drop in Somali piracy.  The report notes however, that while overall piracy incidents have declined substantially, the cost “per incident” is now much higher.

Below are just some of the $6 billion annual costs of piracy:

1. Ransoms & Recovery Costs: $63.5 million
2. Military Operations: $1.09 billion
3. Private Security & Guards: $1.65 – $2.06 billion
4. Re-routing Ships Away from High Risk Areas: $290.5 million
5. Increased Speeds and Fuel Costs to Avoid Hijackings: $1.53 billion
6. Increased Insurance Costs: $550.7 million
7. Labor Costs (Added Crew Hazard Pay and Captivity Costs): $471.6 million.

Somali Pirates Down but Not Out

Incidents of Somali piracy in the Gulf of Aden and Indian Ocean (“High Risk Area”) have declined considerably since its peak in 2009. According to a EU military mission report, 176 cargo ships were attacked and 25 pirated in 2011, that number fell to 35 ships attacked and 5 pirated last year. So far this year, only 3 attacks have been reported, with no ships being taken over by pirates.

This decline has been attributed to:

  • Shipboard armed escort teams consisting of former elite commandos from the US and other militaries and law enforcement agencies. Between 30% to 50% of shippers are now using armed guards for transits near Somalia. This may be the single most significant factor reducing the incidence of piracy.
  • International naval activity by US, NATO, Russian, Chinese and others patrolling the High Risk Area, (such as NATO’s 2011 “Operation Ocean Shield”), and stricter enforcement of anti-piracy laws, with more than 1,000 Somali pirates having been jailed.
  • Security precautions taken by shipping