Piracy costs global economy $7-12 bln a year: study

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LONDON: Maritime piracy costs the global economy between $7 billion and $12 billion a year, researchers said on Thursday, with Somali piracy in particular driving up the cost of shipping through the Indian Ocean.

Sailing from Somalia’s coasts in fragile skiffs armed with AK-47s, ladders, grappling hooks and little else, Somali pirates were judged responsible for 95 percent of the cost.

Meanwhile, occasional attacks on ships continue in the Gulf of Guinea, Nigeria and Malacca Straits.

The report — presented at London foreign policy think tank Chatham House — said there had been some 1,600 acts of piracy since 2006, causing the death of over 54 people.

It looked at the cost of ransoms, added insurance premiums, rerouting of ships, naval patrols, security equipment, piracy prosecutions and other indirect costs including increased food prices in East Africa from higher delivery costs.

"Some of these costs are increasing astronomically," said researcher Anna Bowden from the Colorado-based think tank the One Earth Future Foundation, which conducted the study.

"What is even more concerning is that all these are simply treating the symptoms. Almost nothing is being done to treat the root cause."

Data difficult to obtain

A host of navies from emerging and developed powers including of the European Union, China, India, Russia, Japan and the United States have upped patrols in the region to combat piracy, but little has been done onshore in Somalia.

Overall, Bowden estimated the total cost of piracy had increased roughly fivefold since 2005.

In November 2010, it said the highest ransom on record — $9.5 million — was paid to release a South Korean oil tanker, up from $7 million to release a Greek supertanker in January. The average 2010 ransom looked to be around $5.4 million, the report said, up from only $150,000 in 2005.

Because of this — together with a rising number of pirates and the increasing distance they operated from shore — war risk and kidnap and ransom (K&R) premiums for ships passing through the region had tripled and increased 10 fold respectively.

Assessing the cost of rerouting shipping was difficult as shipping lines were often reluctant to release details, the report said.

Egypt’s Suez Canal revenue had fallen 20 percent in the past two years, the report said, although this was in part due to the economic crisis. The researchers estimated around 10 percent of shipping traffic was now avoiding the area.

"It’s very difficult to get data from the shipping companies," she said. "But we’ve made the best estimates that we can."

Gauging the impact on global commodity prices had proved too difficult to exactly cost, she said, but if piracy continued with a wider economic recovery then increased delivery costs could drive up oil, mineral and food prices.


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