Financial Troubles and Setbacks Caused By Piracy in Somali

By: Nnaemeke Offodile

Piracy in Somali probably isn’t near the top of your list of important things; however with all the global trouble it is causing it probably should be. This reoccurring problem has triggered a financial domino effect, which ultimately results in shipping companies spending more and more money for these cargo ships. In the grand scheme of it all, Somalia pirates are discouraging international trade through that area.

When a high way is closed down what do you do? I assume you turn on your GPS system and find an alternative route that is probably twenty minutes longer.  The same logic applies for cargo ships; where in this case pirates provide the cause of the high way closure. Many shipping companies have begun diverting their cargo ships around Somalia, which only increase their cost due to a longer traveling distance. Vice president of chartering and operation of Fairmount Shipping in Canada, Samuel Tang addresses this issue of piracy. During his interview he states, “As of December 16th, our insurance underwriters declared almost the entire Indian Ocean as a high-risk area. Now, even if we're not in the worst area, we're charged.”  Tang also estimated that prior to December 1st, 2010 shipping was already costing each company an extra $100,000, just to avoid traveling though Somalia waters. So to put this into perspective, the new “high-risk zone,” was brought into effect because of Somali pirates venturing further in the Indian Ocean. This zone is now costing companies another $100,000 to $120,000 per trip, in effect doubling the cost to roughly $200,000 for a single trip.  Tang states that his ships make a total of around 10 trips to India every year. Somalia is costing his company an additional $2 million to the regular cost for shipping to India. These expenses are not including the underline cost; including the cost of higher security, extra fuel for longer trips, ransoms for the lives of crew members, and other minor expenses that will ultimately add up.

In the year 2008, world trade totaled at around $13.9 trillion. Shipping provided 80% of the world’s trade by volume, and about 8% of merchant ships traveled through the Suez Canal, making them a very vulnerable target for pirate attacks. Also in 2008, piracy was estimated to have cost the world somewhere between $60-70 million.

Sources:

BBC. “Q&A: Somali Piracy.” BBC News. N.p., n.d. Web. 7 Mar. 2011. <http://news.bbc.co.uk////.stm>.

Gettleman, Jeffrey. “21st-century pirates: armed gangs of Somalis are threatening international shipping and hurting an already weak global economy.” BNET. N.p., n.d. Web. 7 Mar. 2011. <http://findarticles.com///_m0BUE/_10_141/_n31506012/>.

Morton, Brian. “Somali pirates hurting Vancouver company’s bottom line.” The Vancouver Sun. N.p., n.d. Web. 7 Mar. 2011. <http://www.vancouversun.com//Somali+pirates+hurting+Vancouver+company+bottom+line//.html#ixzz1FlQ2gvui>.