The economics of modern-day piracy

I may be one of few Canadians who can be said to have had a financial interest in ocean-going piracy.

Granted, it's not a very swashbuckling tale.

In the 1980s, while a foreign correspondent, I sold a treatment for a Hollywood film based on modern piracy. It featured the hijacking by small-boat pirates of a lone freighter and its crew.

Like most film treatments, this effort went no further and likely deserved its oblivion.

I know nothing about movie making. But the potential backers added the kicker that a piracy theme would simply not be credible to modern audiences. Piracy belonged back with the days of Bluebeard and the Spanish Main.

Since that little brush with Hollywood, I have, you will not be surprised, followed the subsequent growth of ocean piracy with more than passing interest.

There were initial outbreaks in South East Asia but, more recently, it grew most explosively off Africa's East Coast and out through a growing swath of the Red Sea and Indian Ocean.

It has been evident for half a decade now that small-boat piracy, arising from the violent anarchy of Somalia, has become a serious plague for world shipping.

The world's most advanced navies have been struggling with extended patrols to stamp out pirate attacks along commercial shipping routes with only limited success.

But what I never expected to see is piracy actually starting to win against this international armada. Today's pirates are on a rampage at sea that has the world's admiralties frankly baffled.

Sailing circles

Consider that on any given week 30 to 40 sophisticated warships from more than a dozen nations — the U.S., Canada, the European Union and Asia, including China — are scouring the Red Sea and Indian Ocean for these small-boat corsairs.

But no matter how many destroyers, frigates and accompanying helicopters are deployed, an estimated 1,500 pirates in hundreds of smaller craft are sailing circles around them.

Instead of decreasing, as expected, pirate attacks appear to be enjoying an unprecedented bonanza.

Today, as many as 200 commercial ships are being attacked each year, with up to 50 being hijacked along with all their crews.

Most shipping owners quickly pay up the demanded ransoms, which have earned pirates an estimated $150 million a year, according to international shipping authorities.

A vast ocean

This isn't a gigantic amount compared to the illegal drug trade. But for poor youth in war-torn Somalia it holds out the hope of personal fortune.

It also buys those organizing these venture more recruits and weapons, as well as faster craft with GPS systems that allow them to attack over ever-wider areas of the sea.

As Admiral Mark Fitzgerald, commander of all U.S. Naval Forces in Europe and Africa complained recently: "We could put fleets of ships out there, we could put a World War II-size fleet of ships out there and we still wouldn't be able to cover the whole ocean."

The admiral is right about the sheer vastness of the area now threatened. By using larger mother ships, the pirate carry their fast attack boats well beyond East African shores.

Recently there have been sea-hijackings close to India and as far south as Mozambique.

This month, a South Korean super-tanker, with $200 million worth of crude oil, was seized by pirates over 600 nautical miles off the coast of Africa.

"Once they start attacking that far out, it's the (whole) Indian Ocean," that is under siege, warns Roger Middleton, a leading British expert on piracy. "And it means you're looking at trade going from the Gulf of Asia to southern Africa."

Seven syndicates

There are serious piracy threats elsewhere in the world, of course, including the South China Sea and off Nigeria, along Africa's west coast.

The attacks spreading out of Somalia, however, remain of most concern, because of frequency, the high costs to commercial shipping and, now, the rise of a new generation of more "sophisticated" pirates.

While once portrayed in the media as the work of poor but daring fishermen seeking an alternative to declining fish stocks, piracy has now morphed into a lucrative organized crime syndicates based in places like Kenya, Dubai and Lebanon.

While it seems improbable that such small-craft hijacking can prosper amidst all the international efforts to shut it down, the reasons are not hard to find.

Apart from the vastness of the playing field, the targets — some 20,000 commercial ships plying the Indian Ocean, many filled with dangerous cargoes like fuel oil or chemicals — are thin-hulled, slow-moving ships with civilian crews not willing to fight it out with pirates armed with automatic weapons and rocket-propelled grenades.

Shipping companies have been advised by the military to add private military contractors as guards. But that is also very expensive, up to $20,000 a day for three former commando types and all the special equipment they would demand.

More importantly, this would undoubtely lead to clashes at sea that few civilian captains and crews want any part of. Surrender is a far easier option, particularly as pirates have kept ransom demands reasonably low and tend to release crews safe and unharmed as soon as the money is paid.

In January, Somali pirates freed the Greek-owned oil tanker Maran Centaurus, which was carrying $140 million worth of Saudi crude oil, after owners in Athens ordered upwards of $5 million dropped on its deck.

That's a good haul for pirates, but not enough to break the company.

A delicate balance

So far this year alone, Somali pirates have held 20 captured vessels and 242 crew, while the price of freeing them was negotiated.

The pirates themselves face relatively low risk if caught. As few countries want to try them and house them in their jails, they are generally released at sea. Little wonder there's no shortage of those willing to sign on.

Frustrated by the inability to destroy piracy, the U.S. is now calling on allies to go after the profits from the crime.

It believes there are seven large syndicates operating in Somalia, Kenya, Dubai and Lebanon, which organize these pirates. These syndicates have been buying up prime real estate in regional cities from Nairobi to Addis Ababa.

The reality, however, is that modern-day piracy is likely to last for a long time because these brigands have been relatively modest in their ransom demands, which means insurance costs have not risen enough to cripple shipping companies.

At the same time, navies don't want to escalate action to the point where pirates might turn into destructive terrorists ready to blow up giant supertankers, along with their crews, in revenge.

It's a delicate balance of force and risk that no one, neither pirates nor their pursuers, are apparently anxious to upset at the moment.

And that's a scenario I never did imagine in my long forgotten film treatment.