Somali Pirates Make More Than You Think
By: Angela Andes
The movie, “Captain Phillips”, which is based on a true story, is about an American cargo ship that was hijacked in the Gulf of Aden by Somali pirates. It showed America the violence, fear, and motives of piracy. In 2011, cargo ships along the Horn of Africa--more specifically the Gulf of Aden-- reached a peak in hijackings. Obviously, the pirates have a negative externality on the lives of the sailors, but they also create a negative externality for economy in countries around the world.
The goal of Somali pirates is to hijack a ship that sails in their area, capture the crew, and demand a ransom. This ransom will help provide for their country’s, family’s and own needs. The amount of money taken by the pirates is astonishing. According to the article by Brad Plumer in the Washington Post, “Since 2008, Somali pirates operating in the Gulf of Aden have made about $120 million per year in net profits.” Because of these pirate attacks the shipping costs in this area have increased by eight percent. Over the last several years these raids have cost the shipping industry between $900 million to $3.3 billion per year increasing to $6 billion in 2012. These cost increases have gone toward increased armed security, ransom payments, fuel, and insurance premiums. Figure 1 shows the various cost increases to ship in the Gulf of Aden area. Two of these costs that are noted in Figure 1 and may be a bit surprising are increase in speed and labor.
The idea behind increased speed is to provide more gas for the ships in order to have higher speeds to out run the pirates. The second cost, labor, refers to the need to pay higher wages if the ship sails through the High Risk Area as it is considered hazardous and a higher pay is needed.
Because more money for the shipping industry is going toward security of their cargo ships, the opportunity cost increases dramatically. Other investments could be toward bigger ships, bigger/more cargo, and more ships. Spending money on security costs is important, however it is making international trade more expensive. Not to mention that piracy flourishes in one of the world’s most important trade gateways, stated CNN. It is unfathomable to see that $6 billion is invested toward ship protection. If you think about it, it would be cheaper, but unrealistic, if the shipping industries would hand over the $120 million to the pirates. The Washington Post article states that $1.3 billion in extra security costs for the cargo ships would be enough to employ 1.5 million workers in Somalia at current wages.
Obviously piracy is a problem for all countries trading in this area. There have been many debates on how to handle the piracy to reduce the amount of ships hijacked. One idea already taken into action is increasing security of the ship with guards and naval escorts. This has decreased the amount of attacks since its peak in 2011, CNN reports. According to the article, Somali pirates cost global economy $18 billion a year, “Piracy is a symptom of the breakdown of Somalia’s political system...Go after the system, not just the pirates.” In essence, the Somali pirates have cost overseas trade billions of dollars in protection which has made trade more expensive.
In conclusion these increases in expenses trickle down to cost the end consumer more as the increase in costs forces the merchants to increase the price of their products as they seek to get them to market.
Works Cited
Kermeliotis, Teo. "Somali pirates cost global economy '$18 billion a year'." CNN. Cable News Network, 12 Apr. 2013. Web. 2 Mar. 2014.
<http://edition.cnn.com/2013/04/12/business/piracy-economy-world-bank/>.
Plumer , Brad. "The economics of Somali piracy." The Washington Post . The Washington Post , 3 Mar. 2013. Web. 2 Mar. 2014.
<http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/03/the-economics-of-somali-piracy/
>.
"The Economic Cost of Somali Pirates 2012." Oceans Beyond Piracy . N.p., n.d. Web. 2 Mar. 2014.
<http://oceansbeyondpiracy.org/sites/defau
The movie, “Captain Phillips”, which is based on a true story, is about an American cargo ship that was hijacked in the Gulf of Aden by Somali pirates. It showed America the violence, fear, and motives of piracy. In 2011, cargo ships along the Horn of Africa--more specifically the Gulf of Aden-- reached a peak in hijackings. Obviously, the pirates have a negative externality on the lives of the sailors, but they also create a negative externality for economy in countries around the world.
The goal of Somali pirates is to hijack a ship that sails in their area, capture the crew, and demand a ransom. This ransom will help provide for their country’s, family’s and own needs. The amount of money taken by the pirates is astonishing. According to the article by Brad Plumer in the Washington Post, “Since 2008, Somali pirates operating in the Gulf of Aden have made about $120 million per year in net profits.” Because of these pirate attacks the shipping costs in this area have increased by eight percent. Over the last several years these raids have cost the shipping industry between $900 million to $3.3 billion per year increasing to $6 billion in 2012. These cost increases have gone toward increased armed security, ransom payments, fuel, and insurance premiums. Figure 1 shows the various cost increases to ship in the Gulf of Aden area. Two of these costs that are noted in Figure 1 and may be a bit surprising are increase in speed and labor.
The idea behind increased speed is to provide more gas for the ships in order to have higher speeds to out run the pirates. The second cost, labor, refers to the need to pay higher wages if the ship sails through the High Risk Area as it is considered hazardous and a higher pay is needed.
Because more money for the shipping industry is going toward security of their cargo ships, the opportunity cost increases dramatically. Other investments could be toward bigger ships, bigger/more cargo, and more ships. Spending money on security costs is important, however it is making international trade more expensive. Not to mention that piracy flourishes in one of the world’s most important trade gateways, stated CNN. It is unfathomable to see that $6 billion is invested toward ship protection. If you think about it, it would be cheaper, but unrealistic, if the shipping industries would hand over the $120 million to the pirates. The Washington Post article states that $1.3 billion in extra security costs for the cargo ships would be enough to employ 1.5 million workers in Somalia at current wages.
Obviously piracy is a problem for all countries trading in this area. There have been many debates on how to handle the piracy to reduce the amount of ships hijacked. One idea already taken into action is increasing security of the ship with guards and naval escorts. This has decreased the amount of attacks since its peak in 2011, CNN reports. According to the article, Somali pirates cost global economy $18 billion a year, “Piracy is a symptom of the breakdown of Somalia’s political system...Go after the system, not just the pirates.” In essence, the Somali pirates have cost overseas trade billions of dollars in protection which has made trade more expensive.
In conclusion these increases in expenses trickle down to cost the end consumer more as the increase in costs forces the merchants to increase the price of their products as they seek to get them to market.
Works Cited
Kermeliotis, Teo. "Somali pirates cost global economy '$18 billion a year'." CNN. Cable News Network, 12 Apr. 2013. Web. 2 Mar. 2014.
<http://edition.cnn.com/2013/04/12/business/piracy-economy-world-bank/>.
Plumer , Brad. "The economics of Somali piracy." The Washington Post . The Washington Post , 3 Mar. 2013. Web. 2 Mar. 2014.
<http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/03/the-economics-of-somali-piracy/
>.
"The Economic Cost of Somali Pirates 2012." Oceans Beyond Piracy . N.p., n.d. Web. 2 Mar. 2014.
<http://oceansbeyondpiracy.org/sites/defau
0 Response to "Somali Pirates Make More Than You Think"
Post a Comment