Economics of Piracy

1. Economics of Piracy LT Matthew Myers NS3041

2. Overview • Nature and Scope of Problem • Definition • Why • Areas affected • Costs • Significance • Piracy Trends and Tactics • Current Responses and the Way Ahead • Current Responses • Cooperation in Gulf of Aden • Lessons Learned

3. Nature and Scope of Problem

4. What is Piracy? • Various definitions exist • Under and over reporting occurs due to definitional problems and legal vagueness

5. Why Piracy happens • Seven main enablers • Legal and jurisdictional issues • Geography • Conflict and Disorder • Under-Funded, poorly trained security forces • Permissive political environment • Culturally acceptable • Reward

6. Areas Affected • Piracy Prone Areas • Bangladesh • Indonesia • Strait of Malacca • Malaysia • Philippines • Gulf of Aden • Coast of Somalia • Nigeria 2009 Incidents of Piracy (IMB’s Live Piracy Report)

7. Areas Affected (Cont)

8. Gulf Of Aden • Somali Pirates responsible for majority of piracy attacks • All seven enablers present • Major intersection for arms and human smuggling, and commercial routes intersect in region • However…. • Odds of attack at .3% due to high volume of merchant traffic 2008 Piracy in Gulf of Aden (IMB)

9. Gulf of Aden (Cont) • Piracy evolved from dissolution of Somali government in 1991 • Piracy declined in 2006 when Islamic Courts Union took over • International private security efforts ineffective

10. Strait of Malacca • Natural Choke Point • 1.5NM at narrowest point • 1/3 of Global Trade • Route for all Chinese and Japanese oil imports • Tradition of piracy since 5th century BC 2008 Piracy in Strait of Malacca (IMB)

11. Strait of Malacca (Cont) • Seven enablers of piracy present but in different degrees • Several factors have reduced piracy in region • Regional Cooperation • 2004 Tsunami

12. Costs • Direct Costs • Ransom • Range from $500,000 to $2 million • 30 million for piracy • Insurance • Insurance industry effect is negligible (Industry wide surplus of $505 billion) • Total cost of war zone and hull risk premiums is $350 million (2008) • Cargo premiums $833 million (2007) • Insurance costs of Piracy areas about $9,000/ship • Shipping Delays • Especially commodity carriers • Delays can result in cancellation of shipping contract • Damage to ship and/or cargo • Loss of Life Managing Countries whose ships were attacked in 2008 (Source: IMB)

13. Costs (cont) • Indirect Costs • Shipping Costs passed on to consumers • Shipping industry already reeling from global financial crisis • Margins increasingly small • Security Forces on Merchant Vessel • $60,000 per trip • Route Changes • Military Patrols • Example EU: $129 million for anti-piracy operations (varies by optempo) • Instability • Future Costs • Destabilize regions • Terrorism

14. Significance • Currently piracy costs are insignificant, but… • Potential terrorism nexis of concern

15. Overview • Nature and Scope of Problem • Definition • Why • Areas affected • Costs • Significance • Piracy Trends and Tactics • Current Responses and the Way Ahead • Current Responses • Cooperation in Gulf of Aden • Conclusion

16. Piracy Reporting Criminal Levels: • Low-Level Armed Robbery (LLAR) • Medium Level Armed Assault and Robbery (MLAAR) • Major Criminal Highjack (MCHJ) Location of Attack: • Pier • Anchorage • Underway

17. Perpetrators • Common/Petty Criminals • Objectives: money & equipment • Organized Crime • Objectives: cargo theft, ship theft & ransom • Terrorist Organizations • Objectives: money, phantom ships, casualties, port disruption, trade disruption, environmental damage

18. Preferred Targets • Smaller Craft and Ships • Low freeboards • No visible anti-piracy measures • Larger Cargo ships • Older vessels • Fully loaded • More complex target • Steal-to-order Fishing Dhow Petro Ranger Targets of Opportunity

19. Tactics – LLAR/MLAAR • Stick to known area (local control) • At pier – Tanzania • At Anchorage – Singapore, Philippines • While anchoring – Bangladesh, Ghana • Differing Levels of Violence • Weapons differ regionally • Increase use of guns in 2008 (72 to 139) • Neutralize crew • Kidnap, toss overboard, set adrift • Loot ship, cargo, personal goods, & equipment Pirates in the Littorals Weapons

20. Tactics – MCHJ • Within 200 nm of shore* • Stick to known area (local control) • Shipping routes/choke points • SE Asia –night / Somalia – day • High seas in winter • ~15 knots • Board via ladder & grappling hooks • Conduct “control” of vessel • Differing Levels of Violence • Dependent on Objectives/Region Remains of RPG round Ladder to board *evolving tactic

21. Tactics - MCHJ • Deception • Impersonate Customs Officials • Acting as local Coast Guard • Scare Tactics • Threaten with violence • Shoot weapons at bridge –Force vessel to stop - Force crew to lower ladder • Swarm Attack • Groups of three • 5 people per boat • Overwhelm defenses • Distract bridge Approach via blind spot Firing RPG at vessel

22. Evolving Tactics • Fake Distress calls • Distract crew • Dummy Attacks • Distract forces in area • ‘Motherships’ • Extended Reach • Improving technology • Satellite phones, GPS, Night Vision Devices (NVD) • False Registration • Flags of Convenience • Phantom Ships Increasingly Sophisticated Communications Fishing Dhow at Night

23. Case Study - Sirius Star Airdrop of Ransom • Hijacked Nov 15– Jan 9 • Farthest out ever captured • 450NM SE Kenya • Largest ship ever captured • Crew of 25 • Ship - $150 million • Cargo - $100 million • Low freeboard (30ft) • 24% SA produces in 1 day • Anchored off coast • Ransom paid via parachute drop

26. Case Study - MV FAINA • Hijacked 25 Sept 2008 – 05 Feb 2009 • 50 pirates • -Central Regional Coast Guard • 25 hostages • High Value Cargo • T-72 tanks, weapons & ammunition • Vessel traveling Ukraine to Kenya • Actually destine for Southern Sudan? • Military vessels surrounding • Medical inspections and resupply • 147 hostages on other vessels • Ransom: $35 million-$5 million • $3.2 million paid Pirates patrolling decks UNSC Resolutions USN boarding party

27. Overview • Nature and Scope of Problem • Definition • Why • Areas affected • Costs • Significance • Piracy Trends and Tactics • Current Responses and the Way Ahead • Current Responses • Cooperation in Gulf of Aden • Conclusion

28. Counterpiracy TacticsShip's Own • Recommended Measures: • Maintain SA – piracy watch • Avoid warning areas/times • Maintain VHF comms • Speed up - 15 knots • Heavy wheel movements • Fire hoses - primed • Parachute Flares • Smoke Bombs • Sound Cannons • Secure locks on doors • Spotlights “This isn’t rocket science” SecDef Gates Firing water cannons to repel pirates

29. Counterpiracy TacticsShip's Own • Protector Protector Long –Range Audio Device (LRAD) Private Security Armed/Unarmed Electric Fences

30. Current Response • Anti-piracy Coalition • Currently 14 Countries • Push for Regional Counter-Piracy Coordination Center (CPCC) • U.S Response—CTF-151 • 4 Ships currently • Not a ”Fix Somalia" Task Force • Mission Focus: • Prevent • Disrupt and Deter • Punish • RDML Terry McKnight • Commander, Combined Task Force 151

31. Improved International Coordination • New UN Resolutions 1846, 1851 • Defining Patrol Areas “turf control” • Improved Communications/Coordination • Maritime Security Center HOA • International Maritime Bureau • Piracy Reporting Centre • Maritime Liaison Office (Bahrain) • Kenyan Judicial Cooperation • Pirate transfer from USNS Lewis & Clark soon?

32. Gulf of Aden Security Lanes • IMB designated Maritime Security Patrol Areas updated as of 1 Feb with 2 5-mile east/west bound lanes • Security Assistance: • UK Maritime Security Center (MSC HOA) for Security Assistance & Escort Support • US Maritime Liaison Office (Bahrain)

33. Conclusion • Various factors contribute to piracy • Overall economic costs not huge • Tactics are cyclic and evolving • Has potential to contribute to other international problems • Global economic ties force coalition solutions to piracy • Comprehensive solution necessary else cost/benefit ratio will drive disinterest in solution • Sub-Question: At what point do serious actions become necessary?

34. Questions?