report - Oceans Beyond Piracy

THE ECONOMIC COST OF SOMALI PIRACY, 2012
What follows is a brief summary of the findings from each of the nine cost categories considered:
• Ransoms and Recovery: In 2012, OBP estimates that $31.75 million dollars in ransoms were paid to
Somali pirates. This represents an 80.1% decline in ransoms paid from 2011, when $159.62 million
was paid. The reduction in ransoms is due to the lower number of vessels captured and released in
2012, as well as a lower average ransom than the previous year. In addition to the ransom payment
itself, the logistical costs associated with paying ransoms and recovering the vessels – including the
cost of delivering the ransom, damage caused to the vessel while it is held, and the cost of negotiators,
consultants and attorneys’ fees – were estimated at 100% of the value of the ransoms themselves,
bringing the total cost attributable to the payment of ransoms and recovery of vessels to $63.5 million
in 2012.
• Military Operations: The incremental cost of vessel deployments (including reconnaissance aircraft
and Unmanned Aerial Vehicles), vessel protection detachments, the administrative budgets of naval
operations, and SHADE (Shared Awareness and Deconfliction) meetings amounted to $1.09 billion in
2012. This figure represents a 14% decrease from the $1.27 billion reported in 2011. However, most of
the decrease comes as a result of a more conservative methodology used to calculate the cost of UAV
deployments. Operationally, the major change that took place between 2011 and 2012 is a decrease
in naval assets deployed by the “big three” naval missions – EUNAVFOR’s Operation Atalanta, NATO’s
Operation Ocean Shield, and the Combined Task Force’s CTF-151 – alongside a corresponding increase in
the assets provided by “independent deployers” including China, India, Japan, Russia, and South Korea.
• Security equipment and guards: The total cost of security equipment and guards in 2012 was estimated
to fall within the range of $1.65 and $2.06 billion. The cost of security equipment fell a moderate 11%,
from around $578.7 million in 2011 to $514.6 million in 2012. Because of a greater acceptance of armed
guards by both Flag States and ship owners and operators, the cost of armed guards rose much more
dramatically, up 79.7% from 2011 to 2012 when keeping the number of annual transits through the
Indian Ocean constant. However, our revised estimate of annual transits resulted in a more dramatic
increase, with between $1.15 and $1.53 billion spent on armed guards alone in 2012.
• Re-routing: Shipping companies spent $290.5 million re-routing along the Arabian Peninsula and Indian
coast as opposed to taking a direct route through the HRA. While Best Management Practices still
recommends that vessels re-route, it appears as though fewer ship owners and operators are actually
doing so. The sum spent on re-routing is down 47.9% from the amount estimated in 2011. However, the
proportion of ships transiting around the Horn of Africa that chose to re-route only dropped by 10%. The
rest of the reduction is the result of a change in methodology, whereby fewer tankers and bulk carriers
were considered to be candidates for re-routing.
• Increased speed: In 2012, OBP estimates that shipping companies spent an extra $1.53 billion on fuel
costs associated with steaming at faster than optimal speeds in order to prevent pirate attacks. While
there was no change in the industry’s recommendations for increased speed through the HRA, the
estimated cost of this practice dropped 43.3% from 2011, where the estimated additional cost was $2.7
billion. This $1.17 billion decrease is the largest in absolute terms of all nine cost sections considered,
and is the result of a reduction in the proportion of ships going through the High Risk Area at increased
speed and a drop in the average speed of those ships steaming at faster than optimal speeds. To
calculate the cost of increased speed for 2012, and to confirm the drop in compliance, OBP utilized
satellite Automatic Information System (AIS) data provided by ExactEarth and licensed to OBP for use in
this report.
• Labor: The labor-related costs attributable to maritime piracy include the cost of hazard pay as well
as the cost of paying seafarers while a vessel is being held hostage. Hazard pay is associated with the
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a project of One Earth Future Foundation