Winning: Where Smaller Is Better


August 8, 2010:  The seafaring nations that are running the anti-piracy patrol off the Somali coast have one clear, and valuable, indicator that they are succeeding. In the last two years, the cost of “anti-piracy” insurance for ships transiting the area has fallen 50 percent, to $15,000 (for $5 million in coverage). This is the average rate, as the condition of each ship and crew can change it.

This was because the international anti-piracy patrol caused a major drop in worldwide piracy attacks this year. For the first three months of this year, there were 67 piracy incidents (reported to the insurance companies), compared to 102 for the same period last year. This year, 52 percent of the piracy incidents were off Somalia. Most of the other attacks were near the Malacca Straits and surrounding countries (Singapore, Malaysia and Indonesia), and off Nigeria. Most of these other attacks were basically robberies, with the pirates robbing the crew of valuables, and carrying off any portable valuables (usually electronic) they can carry in their small boats.

In addition to fewer ships being taken, the experts (lawyers and negotiators) hired with the insurance money have developed methods to get ships back more quickly, while paying only a little more ransom. A major cost for shipping companies is the amount of time their ships are held by pirates, and not making money. The average ransom is now about $4 million for insured ships. Fees to negotiators and security experts, who arrange for the cash to be delivered, can run another $2 million or more. But the big reason is that fewer ships are being taken. To qualify for the new, lower, rates, ships have to adhere to rules (following instructions from the anti-piracy patrol) while also training and equipping ship crews to avoid getting captured. Pirates are currently holding 18 ships and 379 crew.

More worrisome is a growing trend off Nigeria, where members of the crew (usually the captain and other officers) are kidnapped and taken to nearby coastal areas controlled by criminal gangs. Only Somalia provides safe havens for pirates to park hijacked ships. But in Nigeria, there are lawless coastal areas, where kidnap victims can be held. Thus insurance rates for ships off the Nigerian coast are moving up (but not as high as for travelling off the Somali coast)

More attacks, either against uninsured ships (smaller coastal boats, usually), or considered too minor to bother with, are not reported. But the big ones (involving very expensive ships and cargoes) almost always are. And this is the sort of stuff the Somali pirates are after.



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