A report released this month estimates the cost of Somalia Piracy was around $5.7 billion-$6.1 billion in 2012, despite notable gains achieved by private armed security guards and aggressive naval activity.
Some of this reduction appears to be coming as a result of shipowners deciding not to follow recommendations to speed ships up or reroute to avoid pirate attacks.
The report, The Economic Cost of Somali Piracy 2012
, which is from Oceans Beyond Piracy, a project of the One Earth Future Foundation, says that cost represents a fall of $1 billion from 2011.
The report said the largest cost decrease associated with fast steaming in the so-called "high risk area," which fell about 43.3 percent to $1.53 billion in 2012.
“While there was no change in the industry’s recommendations for increased speed through the High Risk Area, reduced observance lowered the estimated cost of this practice 43.3 percent from 2011,” the report said.
The report said shipping companies spent $290.5 million re-routing along the Arabian Peninsula and Indian coast as opposed to taking a direct route through the high risk area. It added "While best management practices still recommends that vessels re-route, it appears as though fewer ship owners and operators are actually doing so. The sum spent on re-routing is down 47.9 percent from the amount estimated in 2011"
The largest cost increase came from increased use of armed guards. The report estimated in 2012 half of ships employed armed guards, up from 30 percent in 2011. Total cost for security equipment and guards was estimated at $1.65 billion to $2.06 billion
“Though the reduction in the cost of piracy is a welcome development, it comes alongside an even sharper decline in incidents of piracy, which results in a much higher ‘per incident’ cost in 2012 than 2011,” the report said.
The report noted there were 20 hijackings in 2012, down from 28 in 2011. There were 62 attempted attacks last year compared to 189 in 2011.
Ransom payments declined from nearly $160 million in 2011 to about $32 million in 2012, attributable to the smaller number of ships taken and released in 2012. Average ransom payments have fallen in 2012 to just under $4 million from just under $5 million in 2011 and $5.4 million in 2010.
But crews are spending more time in captivity than in past years. Average hostage negotiation time skyrocketed to 312 days in 2012 from 178 days in 2011. That’s particularly disturbing given reports of physical and psychological abuse of merchant mariners at the hands of pirates.
BIMCO Deputy Secretary General Michael Lund said the report “illustrates well that problems like the Somali piracy problem can grow extremely costly over time. The implied lesson learned is that there is every reason to tackle similar upcoming problems swiftly and with early determination to avoid the problem becoming institutionalized and to minimize the cost of restoring law and order afterwards.”
Jon Bellish, author of the report, said it “shows that the money spent fighting pirates at sea has started to pay off. Activity is down, but even with the lower number of attacks reported in 2012 there was very little movement of resources toward investing in the long-term solution ashore.”
When considered in relation to the lower number of piracy attacks in 2012, the cost to prevent each attack has gone up significantly, the report said. Looked at in this way, the report said in 2012 $82.7 million was spent per pirate attack in 2012 compared to $28.6 million in 2011. - Chris Dupin