Report: Piracy Costs Billions

 

March 2012

 

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While the human cost of Somali piracy is paramount, the global financial impact also is enormous – a point driven home in a recently issued report that pegs the financial toll of piracy in the year 2011 somewhere between $6.6 and $6.9 billion. Oceans Beyond Piracy, the name of both a coalition and an initiative, announced the report in early February. The group said that approximately 80 percent of piracy-related costs are borne by the shipping industry, while governments account for 20 percent of the expenditures associated with countering pirate attacks.


“The report assesses nine different direct cost factors specifically focused on the economic impact of Somali piracy,” explained Anna Bowden, the report’s author. “Over the past year we have had substantial cooperation from maritime stakeholders which has helped to ensure the figures are as reliable as possible.”


The breakdown of the most notable costs includes $2.7 billion in fuel costs associated with increased speeds of vessels transiting through high-risk areas, $1.3 billion for military operations, and $1.1 billion for security equipment and armed guards. Additionally, $635 million is attributed to insurance; $486 to $680 million is spent on re-routing vessels along the western coast of India; and $195 million is the estimated tab for increased labor costs. According to the report, 99 percent of the billions spent are attached to recurring costs associated with the protection of vessels – costs which must be repeated each year.

 

“This figure is in sharp contrast to the $38 million spent for prosecution, imprisonment, and building regional and Somali capacity to fight piracy,” Oceans Beyond Piracy said in a statement issued with the report.


Additionally, average ransoms increased 25 percent from approximately $4 million in 2010 to $5 million in 2011. Although the total cost for ransoms was $160 million for 2011, money collected by pirates represents a mere two percent of the total economic cost. While ransoms provide the incentive for Somali pirates to attack vessels and hold hostages, they represent a disproportionally small cost compared to the nearly $7 billion spent to thwart these attacks, the report noted.


“The human cost of piracy cannot be defined in economic terms,” Bowden added. “We do note with great concern that there were a significant number of piracy-related deaths, hostages taken, and seafarers subject to traumatic armed attacks in 2011. This happened in spite of the success of armed guards and military action in the later part of the year.”


Officially launched at a press conference conducted at the Royal United Services Institute for Defence & Security Studies (RUSI) in Whitehall, London, the paper was presented to maritime experts and international press. The report will be used to raise important issues for the Oceans Beyond Piracy Working Group, which is expected to release recommendations for a better-coordinated and longer-looking strategy against piracy in July 2012.


The full report is available at oceansbeyondpiracy.org and also is linked in a Feb. 8 post in the News section.

 

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