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Recent Uptick in Piracy Raises Supply Chain Costs for Shippers

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  • At its height in 2011, economic costs of piracy was $8 billion.
  • According to Brookings Institute, 90,000 vessels in the world’s commercial fleet transport 9.84 billion tonnes per year within the Indian Ocean lanes.
  • Outlook is not promising until Somalia’s political and economic environment is resolved.

In just a matter of a couple of months, there were four reported Somali piracy acts on the open seas marking the end to a relatively quiet period of such acts. The recent attacks involved:

  • Pirates hijacked an oil tanker and temporarily detained its Sri Lankan crew before releasing the boat and the men without conditions.
  • Pirates attacked a large fishing vessel with the plan of using it as a floating base to hijack even bigger ships.
  • The Al Kausar, an Indian sailing dhow, was hijacked.
  • Pirates hijacked the Pakistani vessel Salama 1 off the coast of Somalia.

At its height, in 2011 there were over 200 pirate attacks but by 2012, the number had greatly been reduced thanks to security measures put in place including shipping companies hiring armed guards, a coalition of foreign navies beefing up patrols to patrol the 1,880 mile coastline of Somalia and aid organizations developing alternatives such as vocational training for the young men that turn to piracy.

The Costs of Piracy

It seems the reasons for this recent spike are the same as in the past. Once again, the pirates are from Somalia, an African country that is beset with famine, drought, political corruption and the rising influence of the Islamic State. The factors that drove many Somali coastal fishermen to become pirates nearly a decade ago are still there, says the BBC’s security correspondent Frank Gardner. While no one is sure what is behind the recent spree of piracy acts, one thing is certain, it is a costly risk to supply chains.

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Source: http://oceansbeyondpiracy.org

According to anti-piracy organization Oceans beyond Piracy, the economic cost of piracy was around $7 billion in 2010, spiking to around $8 billion in 2011 and decreasing to $1.4 billion in 2015.

As a result of these attacks, the African maritime industry has been negatively impacted as shipping costs have increased. In addition, the extra cost in insurance shippers have had to take for war risk, kidnap and ransom in addition to conventional underwriting of cargo and hull have hampered this trade region.

Indeed, the region is an active trading one with the Suez Canal witnessing an average of 45.43 ships transiting the canal per day during January 6-12, 2017 with an average load of 2.47 million tonnes per day.  

Possible Solutions

While not advocating the complete switch from ocean freight to an alternative mode of transport, it is worth considering for some freight. Air freight is a good option for time sensitive and high valued goods. Also, an option that has captured the attention of many shippers is that of rail. Rail options are expanding across Asia and connecting to Europe. Infrastructure projects in India and Central Asia are underway to link into this option. The possibility of such projects within the Middle East and Africa joining with this extensive rail route is great and could prove an interesting alternative for some risky ocean freight shipments.

Piracy has lessened in recent years after an international effort to patrol near the country.  But, in December, NATO ended its anti-piracy mission off Somalia’s waters.  Aid organizations have developed alternatives for young men who have become pirates. Such projects include fishery programs and vocational training.  However, until the political and economic environment within Somalia and surrounding areas improve, it is highly likely acts of piracy will persist.

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