by Charles Ray

Created on: April 14, 2009

Following the money: The economics of modern day piracy

For as long as people have used waterways to conduct trade we have had pirates. The earliest known cases of piracy were in the 13th century BC when the Sea Peoples plied the Aegean and Mediterranean Seas. In the early days pirates were usually after the cargo of vessels, on occasion taking crews hostage and holding them for ransom.

Piracy is with us today and poses a threat to our global economy. Unlike pirates of old, the modern day versions are usually not interested in a ship's cargo. They usually focus on taking the personal belongings of the crew and the contents of the ship's safe. In a large number of cases, the crew is ejected from the vessel and it is held for payment of ransom, or is repainted and provided false papers and sold. The average ransom of a captured vessel is around $1 million, although amounts of $3 million or more have been reported. Ships to be reflagged are usually stolen on behalf of crime syndicates, and pirates can receive $50,000 or more for such operations.

The current hot spot for piracy is off the coast of Somalia, a largely ungoverned state on the east coast of Africa. The International Maritime Bureau reported that of 293 pirate incidents in 2008, 111 were in this region, twice the number that took place in 2007. So far this year, despite poor weather conditions, there have been over a dozen acts of piracy off Somalia; the most notable being the seizure of an American-flagged vessel, the Maersk Alabama, and kidnapping of its captain, Richard Phillips. This incident ended on April 12, 2009 when U.S. Navy Seal snipers killed three of the pirates and captured a fourth. This successful thwarting of an act of piracy has not, however, improved the situation. Even as the U.S. Navy vessel was carrying Captain Phillips and his crew to safety, other vessels were being seized by Somali pirates.

In the absence of coordinated international action, piracy will only grow bolder, and threatens the fabric of the international economy. Worldwide losses to piracy are estimated to be between $13 and $16 billion per year. The world economy depends heavily upon the 50,000 plus merchant vessels that ply the world's oceans and seas. Current efforts to mitigate the impact of piracy, or prevent it, have proven fruitless. Shipping companies have, for instance, directed ship's captains not to sail within 50 nautical miles of the Somali coast. The Maersk Alabama, though, was attacked nearly 200 miles

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