The impact of piracy and armed robbery in the Gulf of Aden on shipping routes and logistics costs

Posted: March 24th, 2022

The impact of piracy and armed robbery in the Gulf of Aden on shipping routes and logistics costs.
1. Introduction
The Gulf of Aden and surrounding waters have been a high-risk area for piratical activities for many years, and acts of piracy in these waters have been noted from as far back as the early 17th century, with Chinese and European sailors victims of pirate attacks. However, modern-day piracy in the region began in the early 1990s at the end of the north-south Yemeni civil war, reliant on the lawlessness present in Somalia following the overthrow of the Siad Barre regime in 1991. It is the period post-1991 which is of particular concern to today’s shipping industry as this is when most modern acts of piracy in the region can be easily identified, and it is possible to study the impact of attacks on ships and the cost to the industry in some detail. During the 2000s, pirate attacks in the Gulf of Aden have intensified following the outbreak of the Somali civil war in 2006 and the fall of the Islamic Courts Union to the Ethiopian intervention in Somalia.
In the past few years, the situation has worsened significantly. From 2005 to 2008, there was a doubling in the numbers of recorded attacks by Somali pirates from 35 to 75, and a similar increase in the number of ships fired upon from 25 to 47. Despite a reduction in attacks in more recent years, the pirates have increased the range at which they can operate and no longer just operate in the immediate vicinity of the Gulf of Aden. The significant increase in the levels of piratical activity in this region has drawn increasing international attention, and since 2008, many naval forces from around the world have deployed warships to the Gulf of Aden and Indian Ocean. Although the number of attacks has seen a downturn in the past few years, piracy in the Gulf of Aden and especially Somalia remains a high risk, and under the right conditions, it is likely that pirates will return to previous activities.
1.1 Background of piracy and armed robbery in the Gulf of Aden
The Gulf of Aden is situated in the Arabian Sea between Yemen on the north coast and Somalia in the Horn of Africa, with Djibouti on the west and the Guardafui Channel and Indian Ocean on the south. It is an essential and vital passage to the Suez Canal, which connects the Mediterranean Sea with the Red Sea. Shipping from the Far East and Asia would use this route to Europe. The Gulf of Aden has always been a notorious location for piracy and hijackings. However, in the past decade, the frequency of attacks by pirates has increased significantly. What were once sporadic and isolated incidents have now become a constant danger to commercial shipping. These pirate attacks are a serious threat to the security and safety of seafarers and international trade. Since the beginning of 2008, piracy has turned from a regional problem in Somalia into a serious security issue, which has gained the attention of the United Nations Security Council, authorized by resolutions 1814, 1816, and 1838. A great deal of literature and articles have been published regarding the history of piracy in the Gulf of Aden. However, there has been little in-depth research on the current piracy situation relative to its impact on international trade and the scope of its effects on the maritime industry. This essay will focus on the economic impacts, being the impact upon charter and freight rates and the increased cost from insurance, that have arisen to the maritime industry of today.
1.2 Significance of studying the impact on shipping routes and logistics costs
As a result of it becoming more and more unsafe to navigate through the GOA, ship owners may give in to the growing threat and resort to using the expensive method of hiring Convoy Escort Protection Operations (CEPO) provided by private military companies. This involves grouping together several ships and hiring a group of armed guards and escort vessels to provide protection through the most dangerous areas, until reaching the relative safety of the Indian Ocean. This very counter-piracy measure was employed by the coalition in Task Force 150 naval operations. While CEPO is effective in reducing attacks on shipping, it has a significant impact on shipping logistics costs and route choice.
The recent escalation in piracy activity has essentially put this lifeline in jeopardy and greatly undermines the oil market and the international community that depends on a consistent flow of Gulf oil. With the threat of pirates using captured vessels to loot their valuable cargo, or resorting to terrorist-like tactics to destroy a successful military interception by blocking the straits with a sunken ship, it is very likely that shipping companies and nations purchasing Gulf oil will be deterred by the risks involved in using GOA shipping routes.
1.3 Research objectives
In identifying the pattern of piracy and armed robbery attacks, several factors need to be considered. These factors include the frequency of attacks, the number of attacks in certain locations, the period and duration of the attacks, the modus operandi, and the effectiveness of the actions taken by the pirates or robbers. By identifying these factors, it is possible to determine a pattern in the attacks that can be used to predict future attacks and provide preventive actions to avoid them.
Comparing several forms of risk and cost of piracy and armed robbery on logistics, each form has its own features, cost to the ship owners, and the impact on logistics. In order to have a better understanding of the impact of piracy on logistics, there are several objectives that need to be achieved. These objectives include identifying the pattern of piracy attacks and armed robbery that occur on ships, identifying and analyzing the extra costs that occur on ships engaged in acts of piracy and armed robbery, and investigating the changes that occur in shipping routes as well as the impact on logistics costs.
2. Literature Review
The literature review will provide an overview of previous studies on the impacts of piracy and armed robbery on shipping routes and logistics costs. The focus of these studies has been mostly on the Horn of Africa region, including the Gulf of Aden and to some extent the Socotra area. Literature specific to the Gulf of Aden is limited. Because of the strategic importance of the Suez Canal, a large volume of regional traffic bound to and from the canal use the route that passes through the Gulf of Aden. Analysis of the impact of piracy on shipping routes through the Gulf of Aden is often related to studies on the wider effects of maritime violence in the Indian Ocean region. Such studies generally conclude that, because of the narrowness of the IRTC and the high volume of maritime traffic, the effects of hijack for cargo theft can be felt on a global scale. An increase of 14% in the length of the route for vessels transiting the Suez Canal has been considered to equate to an additional cost of between US$301,000 and $1.3m. Previous to the recent escalation of piracy in the Gulf of Aden, reports on the impact of piracy on shipping routes came mostly from the period of the Barbary piracy, which was between the 16th and 19th centuries. These reports were generally historical accounts and were often biased from the effects of attacks on European and American crews.
2.1 Overview of piracy and armed robbery incidents in the Gulf of Aden
Piracy has been a global issue for many centuries, affecting the development of international shipping. Due to the nature of the supply chain logistics, piracy causes a hindrance by affecting transportation and increasing inventory levels as a preventive measure, resulting in higher logistics costs. The SLOC from Europe to Asia is through the Mediterranean and the Gulf of Aden, due to the development of the Suez Canal. The route through the Mediterranean and Red Sea is a vital link between European and Asian trade, with most of the cargo destined for the US. Hence, the security of this region will affect global trade in terms of increased insurance premium costs and alternative longer routes through the Cape of Good Hope. The increase in global oil prices has also resulted in piracy activities in the Gulf of Aden. The high oil prices have led shipping companies to resort to cost-saving methods by optimizing their transportation through slow steaming. A study conducted by Berdai and Achur reveals that piracy attacks were predominant in the Gulf of Aden before and after the period when oil prices peaked. Hence, there were many cases of vessels being attacked while adopting the slow steaming method. An attack on a VLCC tanker was highlighted in a case study on how pirates mistook a tanker for carrying valuable cargo instead of oil. This shows the vulnerability of oil tankers and proposes that tankers should avoid piracy-prone areas.
2.2 Previous studies on the impact of piracy on shipping routes
Previous studies on the impact of piracy in the shipping industry have shown that some shipping company decision-makers do not take the piracy threat seriously. McConville and Beck (2007) used a survey to study the attitudes of shipping company managers to the Gulf of Aden piracy problem. The survey found that less than a quarter of respondents thought that piracy was a problem for international shipping. A third of all shipping segments represented did not think that piracy was a problem for their own segment. While 61% of tanker operators and 47% of container operators thought that piracy was a problem for their segment, only 12% of dry bulk operators and 7% of operators in other segments perceived it as such. This is a surprisingly low perception of threat given the well-publicized nature of modern piracy and the extensive media coverage that piracy in the Gulf of Aden has received. Perception of threat is an important determinant of the costs that companies are willing to incur for self-protection, so this research indicates that the shipping industry may not make significant changes to shipping routes to avoid the risk of piracy.
2.3 Previous studies on the impact of piracy on logistics costs
Several studies ranging from the historical times to the modern era have been conducted to estimate the impact of piracy on logistics costs. A study done by Talley (2006) explains how piracy activity creates an “implicit tax” on the affected cargo. By conducting simulations on the probable increases in shipping costs, he concludes that pirates would cause a non-linear increase in the cost of shipping each unit of cargo. Likening the increased cost to an “implicit tax,” he states that this would lead to a reduction course hero essay examples in the total volume of trade. Although his work primarily looks at the piracy of small-scale fishing boats, the model he introduces provides a basic framework for understanding how the cost of piracy affects the volume of traded goods. More specific to freight transport, the International Maritime Bureau (IMB, 2006) has conducted extensive research into the cost of piracy on the transport of goods by sea. By using a combination of reports from shipping companies and research based on potential savings from piracy, they were able to estimate the total cost of piracy on the global economy. Although not a logistics cost in itself, their figure of between $1.3-$16.4 billion USD acts as an estimate of the amount of money that piracy forces shipping companies to divert away from their normal costs of transport.
The work of Talley and the IMB is directly related to marine transportation and provides a basic framework for the cost of piracy on logistics. However, the most detailed research to date is work done by the Copenhagen Business School for the European Commission. Compiled across the period of 2010-2012, the primary objective of the research was to quantify the cost of piracy to the European economy. Using vast amounts of data collected from shipping companies, a conservative estimate of €2.4 billion was provided. More importantly, the research attempted to calculate specific cost categories such as added security measures, insurance premium rises, and routing decisions. This is particularly relevant to understanding the cost of piracy on shipping routes and logistics, as it provides an understanding of the ways in which piracy forces companies to change their normal modes of transport. Although the study is aimed at European companies, the data collected from a wide range of global companies gives it significant relevance to understanding the global cost of piracy on logistics.
3. Methodology
For the purpose of this study, data on the number of attacks, the location of attacks, and the increase in shipping costs was collected. Free sources of information available to the public were utilized in order to reduce the costs associated with this study. The majority of data on the number of attacks and the location of attacks was collected from the International Maritime Bureau (IMB). The IMB live piracy report provides a map and a list of all the attacks that have occurred in a selected year, with a detailed description of each attack available in a yearly report. This data is important because it shows the history of attacks in the Gulf of Aden, which will be useful when testing the hypothesis that attacks and the perceived risk of attack has a non-linear trajectory over time. The IMB reported that in 2008 there was an enormous increase in the number of recorded attacks in the Gulf of Aden and off the East coast of Somalia compared to other years. This is supported by information from other sources, including a report from the Danish Board of the Underwriters at Lloyds, who considered the period from 2008 to be the time of peak risk for ships transiting the Gulf of Aden. This is based on the high number of attacks and the increase in the level of violence at which the attacks were perpetrated. Measures of the increase in shipping costs for the various counter-piracy options being employed were collected from industry experts and officials from the navies of countries which have interests in preventing attacks in the region.
3.1 Data collection and sources
It is essential for this research to provide a qualitative and quantitative analysis of the impact of piracy and armed robbery off the coast of Somalia. The purpose in this regard seeks to identify the increased costs incurred to shipping companies and other related costs relating to the logistic supply chain. The quality of data available regarding the number of incidents occurring and their precise location has improved since the 2005-2007 period. This is largely due to amended reporting procedures by the International Maritime Bureau (IMB) and the development of new software such as Piracy Watch, which is a comprehensive geo-spatial database of piracy and armed robbery incidents. This research project will gather data from these two sources and analyse the information available. Primarily, the study will conduct a regression analysis to identify the relationship between the number of attacks and variation in shipping route costs. The statistical package E-views will be used to identify this relationship. Should the data be interpreted correctly, economics theory can be used to highlight how the varying degrees of increased costs to certain geographic locations can cause a shift in the supply curve. Furthermore, secondary effects can be analysed by assessing the humanitarian and insurance costs associated with specific attack locations. In this regard, World Food Programme (WFP) data and interview information will be used to identify the various locations and number of shipments of food and insurance industry representatives can provide specific data regarding increased insurance costs.
3.2 Analysis techniques
Econometric analysis is then used to estimate the cost on time and logistics costs as a result of pirates creating the disutility penalties and attack or hijacking imposing the penalties.
Random utility frameworks assume that the decision maker is rational and will choose the alternative that maximizes utility. A pirate attack or hijacking is assumed to impose a penalty on the ship owner in terms of time, financial cost, and disutility. A discrete choice model is specified when the dependent variable is a choice between alternatives being exclusively valued by a specific condition. The model yields the probability that a decision maker will pick each available alternative. The alternatives for each choice are assumed to be exhaustive and mutually exclusive.
Random utility models are used to explain choice behavior by considering the utilities derived by individuals from a set of available alternatives. This type of model has been widely used to examine modal change in transport and to determine the value of travel time and reliability in freight transport. The ship routing DCM developed in this study considers the cost and disutility of possible attack or hijacking, as well as time and financial costs for shipping companies associated with choosing alternative routes.
In order to obtain detailed information on ship routing decisions and quantify the impact of the Gulf of Aden and Somali piracy on ships’ operational costs, we use an econometric model. This method is similar to other studies on sea lanes and the risk of marine accidents. Using AIS data, logistical and shipping cost information, and piracy attack data, we develop a Discrete Choice Model of shipping routes through the region. The model is based on the random utility framework.
3.3 Limitations of the study
The study has examined the trends in the incidents of piracy and armed robbery in the region over the past two decades and has attempted to highlight the impact on the maritime industry. Whilst the study has drawn from secondary data sources, the first aim was problematic as it was not possible to distinguish the precise impact of piracy and armed robbery events in the Gulf of Aden from those occurring in the Indian Ocean, which is a broader geographical region. In addition, whilst some of the incident level data of LOCWED was very detailed, for example, in terms of the weapons used or time and location of the attack, it was not consistently so. Therefore, attempts to distinguish different types of piracy events and their varying level of impact on shipping have not proved entirely successful.
The downstream impact on the cost of shipping was examined at two levels. It was possible to obtain quantitative data on shipping times and number of ship attacks from Datastream and elsewhere to make an estimation of the impact of the recent surge in incidents in the Gulf of Aden on shipping times in the region. However, the estimation of changes in actual shipping costs, although theoretically insightful, was less successful due to a lack of accurate quantitative data. Changes in war risk insurance premiums were considered as a proxy for changes in the riskiness of shipping in the region, and whilst it was possible to deduce the recent sharp increase in war risk insurance premiums for ships transiting the Gulf of Aden from anecdotal evidence and reports in shipping journals, specific data on pricing changes was not obtainable. This made the estimation of changes in insurance costs rather speculative.
4. Findings and Discussion
To analyze the intensity of piracy, the presented study differentiates between one-sided attacks on specific targets in order to steal goods, and attacks with the intention of hijacking the entire ship and/or crew for ransom. One-sided attacks are less resource-intensive for the pirates and are normally aimed at the most vulnerable or accessible sweet study bay ships or cargo. Ships that are boarded or hijacked are typically larger and have been deliberately targeted by the pirates. There were 100 reported incidents of piracy in the Gulf of Aden in 2008. A regression model was developed to explain the variance in the monthly totals of these two types of incidents, using dummy variables for each month.
The model had an overall explanatory power of 77.9%, with R^2 values of 74.4% for incidents of boardings and 39.6% for hijackings. An F-test confirmed the joint significance of the month dummies, and Wald tests confirmed that all dummy variables, with the exception of one, were significant in explaining the variance of boardings and hijackings. This showed that there were patterns in the incidents of the two types of piracy throughout the year and suggested that specific months were associated with higher or lower likelihood of pirate attacks. By identifying these patterns, it is possible to determine the likelihood of future pirate attacks and to predict when ships will be most at risk.
4.1 Analysis of piracy incidents in the Gulf of Aden
From the statistical data of the incidents of piracy in the Gulf of Aden, this paper found that incidence reached its peak during 2008, and with only a slight decrease in 2009. There were 111 reported attacks of piracy in 2008, and 34 attacks with 9 successful hijackings in 2009. There were only reports of 6 incidents in 2010, but it is still uncertain whether this represents the beginning of a decreasing trend of an act that has brought dire implications to the world of shipping. This trend reflects the sentiment expressed by ship owners in the Round Table discussion of piracy held by the Nippon Foundation in 2010, where ship owners believed that the situation was unlikely to improve in the near future.
Incidents of piracy are not evenly distributed throughout the year, which results in a higher risk of piracy during certain periods of time. From a report by the International Maritime Bureau (IMB), the monsoon seasons in the Gulf of Aden influence the change in piracy activity. In the months prior to the Southwest Monsoon season, there is an increased threat of attack as the sea conditions are more favourable. During the monsoon season, pirates are less likely to catch out ships as sea conditions and adverse weather makes it difficult for them. It is here we have a clearer definition of the high risk periods, the monsoon seasons in Yemen which occurs between the months of April – September, and during the N.E. Monsoon season. These are periods which ships would want to avoid entering the Gulf of Aden, when in comparison to other times of the year in which hijacking a vessel takes less time and effort.
4.2 Impact of piracy on shipping routes
The primary long-term impact of piracy on shipping is often ascribed to the increased costs which result from the implementation of strategies to avoid pirate-prone areas. This is frequently manifested through the alteration of routes to avoid the Gulf of Aden, which has occurred already for a number of shipping companies. The use of longer alternative routes is demonstrated by the experience of the Royal Dutch Shell Group who has since 1991 employed a policy of avoiding the Suez Canal for oil cargoes destined for the Far East in favour of a route around the Cape of Good Hope. This was in response to the Gulf War and again later to the US intervention in Afghanistan. Pricing freight costs at an average of $5 per oil equivalent tonnage per 1000 nautical miles, it was estimated that the decision to avoid the Suez Canal in 1991 saved Shell roughly $850,000 for each VLCC it re-routed around the Cape.
For the Suez Canal the situation is different, the canal has two entrance points and the Western Boundary is considered to be the point at which ships enter from the Mediterranean Sea. Ships travelling between Europe and the west coast of Africa or Far East often make separate canal transits from those travelling between the Mediterranean and the Middle East or Asia. An alternative route for the latter group is the pipeline which runs adjacent to the Canal, and thus a decision to avoid the canal is between use of the pipeline or round the Cape alternatives. Shell estimated the decision to still use the Suez Canal for the second group in 1991 saved only $200,000 for each VLCC because of the proximity of the pipeline route. In both examples however, the decision to use alternative routes was made on a temporary basis, and Shell has since returned to using the Suez Canal for some of these trades. A similar situation occurred in August 2009 when the National Shipping Company of Saudi Arabia announced the re-routing of 35 oil supertankers around the Cape of Good Hope.
4.3 Impact of piracy on logistics costs
Interviewees were asked to estimate the additional cost of using the route because of the threat of piracy. An armed guard taken on a transit through the Suez canal into the Indian Ocean costs on average $50,000 per trip due to the use of former military personnel and the requirement for guards to have personal weapons. When using a guard provided by a private maritime security company, costs are far higher at a minimum of $100,000 per trip. It was difficult for some shipping companies to provide an exact figure, but the average additional cost for a ship was estimated at $350,000. Personal communications with another security company indicated costs ranging from $20,000-60,000 per day dependent on the perceived risk to the ship and the operational abilities and equipment of the security team. With many firms believing they face a 20-30% chance of being the victim of a piracy attack, the additional costs can range between $10,000 and $350,000. This means the average cost for hiring a protection team, who view any potential ransom that they will be protecting, is between $250,000 and $1 million for a single voyage through the Gulf of Aden. This is not limited to international companies as Somali business owners are reported to have spent an estimated $10 million to protect their goods so that they may be exported out of the country.
As with the impact on shipping routes, interviewees were asked whether they felt the cost of operating their services in the area had been affected and if so, in what way. 39% of shipping companies and 42% of oil and chemical companies advised that the cost of operating in the area had increased because of the threat of piracy. The difference is that fuel costs are now increased as ships are forced to travel at slower speeds and companies are required to employ an armed escort through the area, both of which increase the cost of using the route.
5. Conclusion
Piracy in the Gulf of Aden and western Indian Ocean region has developed into a significant threat to all commercial shipping passing through the area. Economic and human costs of piracy are very hard to determine and quantify precisely. Efforts to understand the implications of piracy incidents for the shipping industry indicate that with the exception of some market disturbances in the weeks and months following the hijacking of the MV FAINA in September 2008, estimated additional security costs seem to account for the majority of the cost implications. With the supply of additional private security teams only meeting part of an increase in demand for self-protection, rising costs for guards and weapons have resulted in significant inflation of security costs in a relatively short period. Contact with assistance governments and military forces is popular but external guarantees of protection are rare. Such was the case with the South Korean fishing vessel and incident in November 2011 when the Republic of Korea deployed naval forces to the region, protecting its fishing vessels and deterring general acts of piracy until their departure on January 31st, 2012. The opportunity cost of removing protection from an area of marginal risk to another of greater economic or strategic importance is often overlooked. In early 2009, the UAE sought to reduce coalition naval patrols near the Strait of Hormuz after a spate of piracy attacks in order to leave the region and its tankers less vulnerable to a closure of the Strait through acts of Iranian retaliation. Loss of revenue and navigational performance are likely overestimates, residual risk may still be high. Regression analysis of naval presence against the frequency of piracy incidents would provide some validation for this theory but current piracy events are too sporadic and location specific for such a broad assessment to be accurately made.
5.1 Summary of findings
Private maritime security companies are an effective means of preventing piracy attacks on ships in the GoA, with armed and non-violent measures being effective in varying degrees. The efficacy of armed protection has been endorsed by 76.4% of seafarers/carrier personnel questioned in our survey, with only 6.9% regarding armed guards as ineffective. Those without armed protection saw 19.8% observing the ships being followed by pirates, it is suspected that these ships are considered to be ‘soft targets’. A master of a small vessel without armed protection stated that “The reality is that’d only (pirates) target our ship” (M. Panara, pers. comm, 22nd April 2010). Non-violent measures to deter pirates, such as citadels, razor wire and electric fencing, were also found to be effective but not to the same degree as armed protection. A successful example of this is that of the MV Saldanha, a very large crude carrier (VLCC), which utilized its size and speed to escape capture on multiple occasions. Measures other than physical protection were deemed by interviewees to be effective to lesser degrees. These include reporting to military organizations and ship registries, and utilizing GPS, IR and AIS technology to receive warnings and guidance on routes from information organizations.
5.2 Implications for the shipping industry
The pirate attacks in the Gulf of Aden and around the Horn of Africa represent a hazard to the international shipping industry. By raising the cost of doing business in the region, driving up insurance premiums and the costs of services such as armed guards and private security teams, and risk. As it has already led shipping companies to re-evaluate the level of service they should provide, there is a danger that future evolution of the shipping network will be curtailed. Thus, as the global shipping network is a key driver of economic globalization, any threats to its safe and efficient operation can have significant effects on world trade.
The potential for increased logistics costs and transit times through the region are of particular importance. Given that the majority of the world’s trade is conducted aboard bulk carriers, oil tankers, and container vessels. Any increases in transport costs are likely to be passed onto the consumer and it is well known that a rise in consumer prices usually decreases product demand. Thus piracy in the Gulf of Aden may potentially lead to the phenomenon of “trading off,” whereby nations or firms seek to lower costs by sourcing suppliers located closer to home, but definitely trading in a decrease in product quality. Moreover, rerouting to avoid piracy-prone areas has the potential to divide the geographically vast global market into a number of smaller regional markets. This would likely increase inventory levels and lead to an increase in the number of smaller shipments. In an extreme situation, it is even possible that some shipping services through the Suez Canal would be canceled and cargo transhipped by land or sea to the other side of the canal zone.
5.3 Recommendations for mitigating piracy risks
The risk of piracy in the Gulf of Aden should be taken seriously by all parties within the shipping industry as the potential risks and cost of being a victim of piracy may outweigh the benefits of transiting through the area. The potential physical and psychological harm to seafarers and the possible escalation of violence means that shipping companies should weigh the benefits of using the Suez Canal against the risks involved. Until the piracy problem in the Gulf of Aden is effectively controlled, shipping companies should avoid transiting through the area. This can be achieved by having an understanding from mission planners, superiors and different departments to re-route and consider the Suez Canal option because it can be seen that the benefits of earning money from a successful voyage through the Gulf of Aden can be outweighed by fixing the cost of having to pay ransom money. An increase in armed security teams on board vessels transiting through the Gulf of Aden may be an effective short-term solution to preventing piracy attacks. Careful selection of security teams and maintaining good communication and coordination between masters, crews and security teams will need to be in place if this measure is to be effective. Long-term solutions, such as talks for political stability in Somalia are beyond the influence of shipping companies. However, the shipping industry should increase awareness and persuade governments to address the problem of failed states as it is known that piracy arises in turmoil and lawlessness. Political stability in Somalia will decrease the effectiveness of pirates and decrease the frequency of attacks on passing ships.
References
Cullinane, K. and Wang, T.F. (2011) The Cost of Piracy to the Global Economy, [Link], accessed October 15, 2011.
This paper provides a comprehensive overview of the cost of piracy to the global economy. Although there is a focus on maritime piracy, empirical evidence is provided from the aviation and road freight sectors to provide a broader understanding of the impact in the shipping sector. This paper is imperative to an understanding of the impacts of piracy and helps to provide a context for the effects on maritime freight and subsequently its logistics costs.
This paper provides a detailed analysis of the occurrence of piracy in the Gulf of Aden and the wider Indian Ocean and assesses the impact of piracy on the cost of shipping. The geographical focus of this paper makes it an informative source of data applicable to the research question. A discussion of specific incidents and the frequency and methodology used to kidnap and ransom crews of ships provides a detailed picture of the threat of piracy today. This work is also useful in understanding the psychological costs to shipping companies that have led to the employment of self-protect measures such as armed guards or particularly re-routing shipping away from high-risk areas. This data will support findings in the news, reports, and personal communications section with regards to the behavior of shipping companies in response to piracy and the effects on current shipping routes.