Piracy syndicates are selling shares in planned attacks, fueled by a surge of ransom payments that help attract investors, the U.S. Chief of Naval Operations Admiral Gary Roughead says.
By Viola Gienger
Bloomberg News
Saturday, April 23, 2011
Piracy syndicates in villages, mainly in largely ungoverned Somalia, solicit investors who buy shares in the attack missions and gain a corresponding share of ransoms paid by the shipping industry, he said.
"The ransoms fuel the business; the business invests in more capability, either in a bigger boat, more weapons, better electronic-detection means to determine where the ships are," Roughead said in an interview. "So it's a business."
The average ransom payment rose 36-fold over five years to $5.4 million last year, compared with $150,000 in 2005, according to the Louisville, Colo.-based One Earth Future Foundation. The payments are fueling increased raids, adding at least $2.4 billion to transport costs because vessels are being diverted onto longer routes to avoid attacks off Eastern Africa, the nonprofit group said this year.
The London-based International Maritime Bureau recorded 142 attacks worldwide in the first quarter of the year, the most for the period since monitoring began in 1991.
Pirates are extending the business model to how they pay their crew members based on skills or other assets, such as weapons, that they can bring to the mission, Roughead said.
While shipping companies are increasingly adopting proven practices to reduce the risk of a pirate attack, they also may benefit from paying ransoms by avoiding higher insurance rates, the admiral said.
Ransoms paid totaled $238 million in 2010 and total losses were as much as $12 billion when costs such as insurance premiums, rerouting of ships and security were taken into account, according to One Earth Future, which runs a project to work with industry and affected countries to curb piracy.
"I think the shipping companies are aware of the fact the ransoms are not helpful," Roughead said. "My sense is that it is a business decision on their parts."
Shippers have to consider the welfare of their crews in confronting the challenges of piracy, said Joseph Angelo, the Arlington, Va.-based managing director of Intertanko, a trade group for tanker owners.
"If our membership don't demonstrate a strong concern for the safety of the seafarer, why would any seafarer sail with our member?" Angelo said.