Counting The Cost

A new report, compiled by US-based think-tank One Earth Future, has calculated that “maritime piracy is costing the international economy between $7 to $12 billion, per year.”

The report notes that “at the end of 2010, around 500 seafarers from more than 18 countries are being held hostage by pirates. Piracy clearly affects the world‘s largest trade transport industry, but how much is it costing the world? One Earth Future (OEF) Foundation has conducted a large-scale study to quantify the cost of piracy as part of its Oceans Beyond Piracy project.”

The project set out to analyze the cost of piracy to three regions: “(1) the Horn of Africa; (2) Nigeria and the Gulf of Guinea; (3) the Malacca Straits,” said a summary press release. “The focus has inevitably been on the costs of Somali piracy because this is the region where contemporary piracy is most highly concentrated and is the great¬est source of current data and information.

“The project primarily analyzes direct costs, but also considers some secondary (indirect) costs. We hope the model, report, and calculations produced by this study will be a useful tool for analysts and policy makers working towards solutions to piracy. The project is designed to be a collaborative effort, and we welcome any data sources, com¬ments, or other suggestions that interested stakeholders might have.”

Its analysis of the situation in the most active region, off the Horn of Africa, concluded that “over the past five years, ransoms paid to Somali pirates have increased from an average of $150,000 in 2005 to $5.4 million in 2010. The largest known ransom payment was for the South Korean oil tanker, the Samho Dream. This vessel was ransomed for a record $9.5 million in November 2010. By the end of 2010, approximately $238 million was paid in ransoms to Somali pirates in that year alone.”

The report also analyzes the effect the piracy explosion has had on insurance premiums as follows: “Shippers purchase four main types of insurance as indemnity against piracy: war risk, kidnap and ransom (K&R), cargo, and hull.

“The most significant increase in premiums has been in ‘war risk’ and K&R. The Gulf of Aden was classified as a ‘war risk area’ by Lloyds Market Association (LMA) Joint War Committee in May 2008, and is therefore subject to these specific insurance premiums.

“The Cost of Piracy Model calculates the additional cost of insurance to the shipping industry by using a lower bound estimate (10 percent of ships purchasing these insurance premiums) and an upper bound estimate (70 percent of ships). From these calculations, we estimate that total excess costs of insurance due to Somali piracy are between $460 million and $3.2 billion per year.”

In addition to the costs of trying to stop the pirates, there’s also the cost of prosecuting those that are apprehended. The report notes that “over 750 Somali piracy suspects have either been tried for piracy, or await trial in more than 11 countries.

“To calculate the cost of piracy prosecutions, we worked out the number of prosecutions held in three regions: Africa and the Indian Ocean, Europe, and North America. We have then multiplied this number by an ap¬proximation of the average cost of prosecutions for piracy or simi¬lar crimes in each region. The project estimates the cost of piracy trials and imprisonment in 2010 to be around $31 million.”

In addition “a number of intergovernmental organizations are dedicated to working towards a solution for maritime piracy. These funds rep¬resent operating costs as well as established trust funds. The total budget of these organizations is around $24.5 million.”

Source: One Earth Future – Oceans Beyond Piracy Project

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