Threats from pirates continue to weigh heavily on the shipping industry.Among them, the influence of Somali pirates is very high. Today we are going to talk about how Somali pirates make money and minimize their threats.
The TI Europe, one of the four largest Ships in the world. And here's a banana for Scale At 380 meters long, or twele hundred feet it's 41. longer than the Trtanic, In this business, efficiency is everything and every dollar Counts.A ship made with twice the Steel has much more than twice the Capacity, with roughly the Same Size Crew.
Bigger boats, there froe, cost only a little bit more and yet make a lot more money. So here we are, with Suprkankers that can hold three million(3,166,353) barrels of oil. Which, at today's going price, makes the TI Europe a $ 174 million (3,166,353×$55 = 174,149,415) target for pirates.
Last year, an attack was reported every other day in Some of the busiest, most well patrolled routes, like the Gulf of Aden, the Singapore straight, and the Coast of Malaysia. But these are not piarrot - wearing, word- Carrying outlaws. 'Today's pirates operate a Carefully- planned, well - executed business - with investors, a stock market, chain of command, and experienced negotiators. All without the help of Linkedln. Every part of an attack is a fascinating lesson in ecconomics And with profit margins of over 30%- even Apple should be jealous.
Somalia is by almost every metric, one of the hardest places of live on Earth. It's now three-decade long Civil war has not only led to drought and famine but also left the Country without a unified Central government. To the north are the independent but unre cognized States of Somaliland and puntland.
In the South, Contorl is Split between the federal govermment based in the capital Mongadishu, and large, terrorist factions, This makes buiIding infrastructure like Schools and hospitals entremely difficult. which, in turn, makes building a formal economy, nearly impossible. The result is a 55-year life expectancy, one of the lowest inthe world, and a GDP that make Ghana and Madagascar look rich. while next - door Ethiopia makes money growing coffee, potatoes, and Cereals, Somalia is not so lucky. only 1.8%. of its land is arable, Compared s to half of india, or 34% of Germany. It's two climates are hot and really hot. But , it does have one thing going for it the longest Coastline of any Conutry in Africa. Fishing Should be a huge Source of income.
But, you guessed it, there's a Catch.
Fxorign Companies noticed the Country Seemed a a little predccupied at the moment and probably wouldn't notice if they dumped toxic waste in its waters kelling thousands of fish in the process. Those that Survived are, now Caught... illegally by foreign fishermen, who steal $300 milion worth every year, leaving Somalia with only a small share of its own tuna.
So, just to recap. somalis are given little education, face a constant threat of Violence, have nearly zero health care and a per Capita GDP of... keep Scrolling... $104 or tuwenty-eight cents, Per Person, per day The average ransom, on the other hand, is 2.7 million, so piracy is not exactly a tough Sell. It all beging by identifying a target. The ideal victim Comes from a rich Coantry, is traveling slowly, and near the Coast. Or, in the case of luxury cruise Ship Star Breeze which was attacked in 2005, all three,
The next step is financing.:
A single attack may cost $ 30,000 up front, which is already a lot, but especially in somalioa. So the riskis usually spread between 3-5 investors who buy Shares in an informal stock imarket.
Now Comes the attack.
with one, large mother ship; anywhere between 4 and 2O pirates follow their target-up to 800 miles off the "Coast. once they get closep they switch to one or two small chaser boats, and use rope and ladder to board the Ship. of course, the crew is trying to speed up or change directions, and fight backs but they also khow they're no match for the Ak -47s, rocket launchers, and desperation of the pirates. The Crew is gathered together, and their communications destroyed, making the Ship go dark.. The next step depends' on their business model. In areas like south East Asia the goal is often stealing oil, selling it to anyone smart enough not to ask why it's so sheap, But here, in somalia, Pirates rerely touch the cargo. The crew is by far, the most valuable thing on board. They-Steer the Ship to a near by port, Where the most tense Part of the Operation beging. With anly one buyer and one seler, almost hone of the nules of a normal negotiation apply. Neither party has all the information and both have great incentive to lie. The owner of the Ship wants to appear poor,I driving down the ransom.
The Pirates, meanwhile, need to seem rash enough to deliver on their threats and yet patient enough to wait for a deal. Because, the clock is ticking. As time goes on, the value of the ship and its Carg goes down, and the average ransom generally goes up. Talks, therefore, Can last three, four, five hundred days, all Spoken through a translator, ofiten with Several different negotiators. If the owher has kindnapping & and Ransom insurance, negotiations are made by a professional, who reduces the Chance Of death from 9% to just two. But Companies aren't allowed to say they have insurance. in fact, many Corporate travelers dont know they have K & R insurance. If they did, it would be invalidated. Beause of the incentives, an agreement is almost always reached. pirates bring the Crew up to the top deck, Confirming their safety.
And then, a helicopter flies overhead and drops a water proof Containerfull of cash. Finally, Comes a pirate's favorite job accounting. First, investors get their guaranteed cut of at least 30% The port, who looked the other way while they parked the Ship, gets 5 - 10%, And the rest is Split between the attackers, with a bonus of around $10, 000 for being first to board the ship. The seenario plays out hundreds of times a year, and Costs shipping Companies a total of 4.9 to $ 8.3 billion a year - including -security and insurace. Even just Speeding up from 13 to 18 knotS Costs an extra $8, 000 in fuel, per Ship, per day. And those Costs are passed on to you anc me. we all pay a hidden "Piracy Tax", so, what Can be does ?
The obvious answer is fighting back. NATO's operation ocean Shield greaty reduced attacks from 2009 to 16 by patrolling danger ous waters.
And any Shippers now. hire private security Companies to fill that role. But this Creates a free rider problem, other companies and Countries: benefit from that security without paying for it themselves. Like wise, everyone would be better off if no ane paid ransoms, but it's always in each Company's best interest to pay them.
All of these Solutions reduce piracy, but none of them solve it. For 30-$ 75, 000 per attack, there will alway: be Sameone willing to take that risk no matter how high it becomes. The only real salution is economic, giving pirates alternative ways to make money. Rebuilding a Contry like somalia is a major under taking, but giving locals new skills and new opportunities really is the long-term Solution.
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