AIR CARGO SECURITY POLICY NEWSLETTER

Transcription

1 AIR CARGO SECURITY POLICY NEWSLETTER The Human and Economic Costs of Somali Piracy September 16, 2011 Somali pirates, the bane of freighters and tankers plying routes south of the Arabian Peninsula, are adopting daring new tactics to counter the effects of a multinational naval crackdown and better-protected merchant ships. In the first-ever attack on a vessel at anchor in a country s territorial waters, armed pirates hijacked the chemical tanker Fairchem Bogey within sight the Omani port of Salaleh on August 20, according to the International Maritime Bureau (IMB). The bureau s Piracy Reporting Center explained that armed pirates boarded the ship, took its 21 crew hostage and put the vessel on course for Somalia. Earlier last month, at least two freighters told the IMB that the largest ever number of pirates working together had swarmed their vessels. The Neptune came under attack August 7 off the coast of Eritrea by a dozen skiffs each carrying five to eight pirates. The crew fought off the pirate armada, but 11 days later a second, an unnamed bulk carrier was nearly hijacked by a fleet of seven skiffs in the same area. A report entitled the human cost of Somali piracy, issued by Oceans Beyond Piracy, (OBP - an initiative sponsored by the One Earth Foundation) provides an excellent and worrying

2 2 account of the lack of public concern to the fate of seafarers. This newsletter includes extracts from articles discussing the costs of piracy, the oil industry as the No 1 target of piracy, issues relating to private security firms and the approach of the insurance industry that cautions Shipowners should also ensure that the embarkation of additional security personnel does not place them in breach of SOLAS safety equipment certificate requirements. It includes articles by Laurence Smallman, a defense research analyst at RAND Corporation, on why it is so difficult to stop piracy and how Piracy Pays who tells us that Piracy can be considered a symptom of a much wider malaise that of persistent maritime disorder. This disorder may arise from the interplay of many factors that can be grouped under the broad headings of governance, society, and economy and, International business practices encourage piracy in the Gulf of Aden and work against national and international interests. The business community needs to examine its practices or piracy will continue to flourish. The newsletter closes with an article by Amitai Etzioni published in the Winter issue of the Canadian Naval Review suggesting that the human rights extended to (these) pirates were at least initially interpreted in such an expansive way that they prevented proper attention to two basic common goods: the safety and livelihood of civilians; and the right to freedom of navigation in international waters. The Human Cost of Somali Piracy The following is from the press release announcing this study: As violence against seafarers by Somali pirates escalates, a new study has been completed that provides new insights into this issue. The study was commissioned by the Oceans Beyond Piracy Project, a group of maritime experts are especially worried about the lack of public concern. Thousands of seafarers have been subjected to gunfire, beatings, extended periods of confinement and, in some cases, torture in the Indian Ocean and Gulf of Aden at the hands of their captors. The study, The Human Cost of Somali Piracy, is to be launched on 6th June at Chatham House in London. The study s findings indicate that during the course of 2010: 4185 Seafarers were attacked with firearms and Rocket Propelled Grenades. 342 Survived Incidents in Citadels (ships reinforced security rooms) Seafarers were taken hostage. 516 Seafarers were used as human shields. The cost to the Somali community is also concerning. Piracy affects food security and endangers Somali youth. In spite of the violent nature of these crimes, the new study says the human cost of piracy is still underreported and misunderstood by the public. There is very little reporting of the personal violence against seafarers in the waters off Somalia, says Kaija Hurlburt, lead researcher for the OBP study. We have found strong evidence that over a third of the seafarers that were held in 2010 were abused, and the trend is looking more ominous this year. The lack of reporting

3 3 prevents the true cost from being understood by the public. The new study notes that the economic cost of piracy is now well-known, but it makes clear that the extent of the human cost is much less well-known and understood. According to Per Gullestrup, the C.E.O. of a shipping company, the Clipper Group, Somali piracy has a tendency to be discussed in economic terms, but the real issue is the untold misery and trauma imposed on our colleagues at sea and their relatives by the Somali criminals. We should be very concerned about the lack of concerted action by the global community in dealing forcefully with this problem.'' The Oceans Beyond Piracy Project is sponsored by One Earth Future Foundation (OEF). OEF is a private foundation located near Boulder, Colorado in the United States that is committed to seeking effective solutions to emerging governance challenges. OEF s first project is the Oceans Beyond Piracy Project, a collaborative effort that seeks to engage and mobilize maritime stakeholders affected by piracy. The full study can be accessed at: es/human_cost_of_somali_piracy.pdf The costs of piracy Publications on the subject of piracy have estimated that piracy off Somalia and in the Indian Ocean has to date cost the global community somewhere near $10 billion; that average ransoms for ships grew from $150,000 to $5.4 million between 2005 and 2010; and, that there were a record 98 attacks between January and March in this year alone 1. There are additional costs as well: having ships out of service, the deployment of naval vessels from a number of countries, tankers and freighters needing to take long detours to avoid danger zones, holding court cases and incarcerating the pirates. Many countries have deployed warships to the Indian Ocean in order to thwart attacks. At any given time, there are up to 30 vessels in the water to guard cargo ships passing through, including vessels from the European Union, North Atlantic Treaty Organization, Combined Taskforce 151 and companies safeguarding their own cargo. The European Union s budgeted amount for patrol vessels totaled $450 million in Safeguarding cargo through the Gulf of Aden costs an estimated $1.3 billion per year, according to RAND Corporation s piracy expert, Peter Chalk. The costs to outside nations are mounting. However steep the costs of an armed escort might be, Chalk said cargo vessels continue to sail near Somali shores. The route remains a 1 acy_summary[1].pdf

4 4 quicker and cheaper option than alternatives which could take up to 20 extra days and cost an additional $1.5 to $2 million for cargo shipment. The risks are still not sufficient enough to make it economically worthwhile to bypass the Gulf of Aden, Chalk said. When vessels are taken hostage, the shipping companies and cargo owners chose whether or not to pay the ransoms demanded for the boats release. Governments have not publicly assisted with ransom payments. Some argue there ought to be a ban on shipmasters paying for the release of their vessels, as ransoms provide money for criminal activities. However, the fees demanded by pirates are less than the wholesale cost of losing cargo. And when boats are not moving, they cannot make money. There are substantial losses when vessels are kept inactive for months. The cost of one ship held hostage for two months averages $3 million. This includes loss of hire, damage to the vessel and the cost of recovering the ship, including the payment and delivery of the ransom, Mukundan said. Some companies opt for kidnapping insurance when crossing the Gulf of Aden. From their increased premiums and profits, you can extrapolate the damage to the shipping industry, said Osiro. However, no economywide impact study has been done for the regional countries. South Korean freight, the largest known naval ransom to date. Chalk noted that kidnapping insurance has become a lucrative business and more companies are offering it as an option, which then brings down premiums because of increased competition in the markets. There are about 20,000 transits through the Gulf of Aden each year. The risk of attack ranges from 0.5 to 1 percent. According to the International Maritime Bureau, there were 420 incidents between 2008 and June Somali piracy is unlikely to abate anytime soon. Since May 20th, there have been 14 reported incidents on the Red Sea, despite the monsoons, which many hoped would prohibit small attack boat activity. Osiro predicted many more attacks, and speculated that they are likely to become more indiscriminate as a result of the warships stationed in the Gulf of Aden and the Somali basin. Pirates still hold 405 hostages and 21 vessels for ransom. Military solutions will only lead to increased violence against captives, she said. The business of piracy is becoming more typical like the traditional organized crime, Osiro added. There is likely to be more human rights violations, illegal executions, illegal trials and the increasing role of armed private security providers. War binder insurance coverage can cost about $20,000 each year, whereas insurance premiums cost $500 in This excludes coverage for ransom payments. Last year the average ransom payment equaled $2 to $3 million. These amounts have more than doubled over the past 22 months, according to Chalk. Recently, $10 million was paid to release a

5 5 Private Security Firms The view from Germany: Western security firms have now discovered piracy as a new business sector -- one worth millions. Their portfolio of services includes making contact and negotiating with pirates, supporting relatives and preparing and delivering ransoms. Occasionally things go wrong, such as when Somalian officials recently arrested three Britons, two Kenyans and an American at the airport in Mogadishu. When they searched through the group's luggage, they found $3.6 million in cash meant as ransom for two ships seized by pirates last year. A wide-ranging international naval mission has not succeeded in stopping the pirates, with 163 attacks reported in the region in the first half of Now some in Germany are demanding a more official level of protection for merchant ships. Up till now, the use of private security guards on board German ships has been a legal gray area. But following recent calls to change Germany's laws to allow the practice, some state governments are demanding German police officers and soldiers help protect merchant ships directly. In the meantime, moves have been made to clarify the legal position of private security forces. It is estimated that a third of German ships operating off the east African coast already have such forces on board. "The traffic lights for deployment of (private) security forces have gone from red to amber, but are not green yet," Hans-Joachim Otto, the government's coordinator of maritime industry policy, said last week, stressing that an International Maritime Organization (IMO) vote next month is crucial to the final decision. "It's a global problem and should get a global solution." German police trade unions, however, are hostile to what they consider a "privatization" of lethal force. "It's a function of the state alone," said Bernhard Witthaut, chairman of the German Police Union. He has called for Germany to set up a marine police unit manned by former German soldiers. But German commentators Friday were angry that shipowners were seeking official state help, with some pointing out that many of their vessels sail under a flag of convenience and do not follow existing security procedures. The approach of the insurance industry: The following has been extracted from Hellas Highlights, published by the UK P&I Club (Managed by Thomas Miller) There is no P&I cover restriction or prohibition per seon the deployment of on-board security personnel and appropriately trained and competent personnel may well assist in enhancing on board security procedures and response. Proper care and diligence should be exercised in relation to the selection of the appointed security company. Until recently the view of most states and the industry, including the International Group clubs, has been that on-board security personnel should not be armed. The underlying reasons include the risks inherent in the use of arms by untrained or improperly trained persons. There may be an enhanced risk of loss of life or injury through armed engagement, the risk of encouraging the escalation of armed engagement and the use of more potent and warlike weaponry. There is however increasing pressure from some states to positively support the use of armed on-board security. The most recent indications from the US are that it is heading in this direction in relation to US f lag ships. In

6 6 addition industry bodies are moving to a more neutral stance on the issue leaving the decision to individual shipowners. A decision to use armed guards should, however, only be taken where justified by a voyage risk assessment 2 and only as an addition to, and not in substitution for recommended self defence measures of the Best Management Practices (BMP) and in no case should crew members be armed. Flag state and port state restrictions, licensing requirements or prohibitions on arms on-board ships also need to be considered. 3 Whether cover is prejudiced by having armed guards on-board is likely to be dependent on the cause of loss on a case-by-case basis. It is unlikely that cover would be prejudiced by the use or actions of unarmed guards, but intervention by armed guards could result in prejudice to cover if their use is in breach of f lag or port state regulations or if there is an applicable legal prohibition. Shipowners should also ensure that the embarkation of additional security personnel does not place them in breach of SOLAS safety equipment certificate requirements. 2 Possibly as defined in IMO MSC.1/Circ May 2011 interim guidance on the use of privately contracted armed security personnel 3 The South African Police requirement that they be given 21 days notice prior to a ship arriving with arms or ammunition on board and that a permit has to be obtained. Failure to comply may result in a fine. Oil Industry the No1 Target With Somali pirates covering a larger area, there s an increased risk to energy tankers entering the Indian Ocean headed for key ports in Indonesia, India and China. In 2010, one-third of all pirate attacks were targeting ships carrying chemicals, crude oil and natural gas. This has increased from just 20 percent five years ago. One country bearing the brunt of Somali piracy is neighboring Kenya. The Kenyan Shippers Council (KSC) estimates that piracy increases the cost of imports by $23.8 million per month, and exports by $9.8 million per month, according to One Earth Future, a global think tank on trade. Across the continent, Nigeria s oil industry has been a direct target of pirates. One Earth Future calculated that Nigeria s oil production has dropped by 20 percent since 2006 as a result of piracy and other attacks. Royal Dutch Shell estimates that approximately 100,000 barrels a day (roughly 10 percent) of Nigeria s oil production is stolen every day. To avoid the high-risk areas and protect the workers on the ships and supplies from a pirate attack, these tankers have changed their routes. They now travel farther east toward the coast of India before heading south, adding six days of travel time for a Western destination and increasing travel expenses for the shipper. Energy tankers are also employing armed security guards, paying increased insurance rates and retrofitting their vessels to lessen the chance of a pirate attack. One Earth Future estimates the global cost of piracy on the economy has grown to approximately $7 to $12 billion a year.

7 7 Oil transport is specifically susceptible to piracy because about one-half of total production is moved by tankers on fixed maritime routes, according to the U.S. Energy Information Administration (EIA) 4. This oil flows through chokepoints such as the Strait of Hormuz between Oman and Iran and the Strait of Malacca between Indonesia, Malaysia and Singapore. Over the past 30 years, the International Maritime Organization (IMO) has successfully lowered the risk of pirate attacks in other regions around the world. With the recent escalation of piracy around Somalia, governments and worldwide organizations including the United Nations are now working in concert with the IMO to curb these attacks. Their theme for 2011, Piracy: Orchestrating the Response, represents an increased awareness of the world-wide political changes required to reverse this trend. The full article can be accessed at: General/Global Cost of Piracy is now $12 Billion Per Year Oil Industry No.1 Target.html PIRA 5 calculated the increased costs related to oil tankers in the table. Considering all factors vessel diversion costs, additional bunkers, armed guards, hull insurance the total cost is approximately 40 cents per barrel when transporting oil in and around this area. When you consider a supertanker can transport up to 2 million barrels a day, it adds up. Under PIRA s calculations, the piracy surcharge tacks on another $800,000 to the total shipping cost. 4 Maritime Security: Progress Made, but Further Actions Needed to Secure the Maritime Energy Supply, by Stephen L. Caldwell, Director of Homeland Security and Justice Issues, before the Subcommittee on Oversight, Investigations, and Management, House Committee on Homeland Security. GAO T, August 24 What s so hard about stopping piracy? The following has been extracted from an article by Laurence Smallman, a defense research analyst at RAND Corporation. The recent killing of American hostages by Somali pirates perhaps has set aside any Robin Hood-like notions that some may have had about the intent, determination, and ruthlessness of modern pirates. My RAND colleague Peter Chalk has written extensively that such murders and the ransom lure likely will increase in the future; we both believe that the best results maritime forces can achieve at sea is containment of a problem that arises from conditions on land. Yet containment at sea through the coordinated action of many nations may be the only option for many years. If that is the case, can modern Earth observation satellites and other detection systems significantly contribute to international law enforcement? 5

8 8 Piracy can be considered a symptom of a much wider malaise that of persistent maritime disorder. This disorder may arise from the interplay of many factors that can be grouped under the broad headings of governance, society, and economy. Where there are imperfections in these factors or their interaction, persistent disorder can occur. This disorder can be exploited, and it is the intent and capability of the perpetrators that determines the crime. From this perspective, the problem of piracy is just one of the potential crimes that may occur at sea. Tackling persistent maritime disorder will require rectification of the underlying factors and the way they interact. In the case of Somalia, weak governance on land is the likely key. Addressing the problem at sea concentrating on just one symptom may contain that one symptom, but it is unlikely to address the underlying problem. Indeed, the evidence so far suggests that despite the expense of naval patrols and other international actions, piracy in the Indian Ocean is increasing. Containing persistent maritime disorder might be more fruitful and could lay the foundations for a successful transition to better use of the sea once the societal factors - an even longer term problem - have been resolved. This approach will require a broader undertaking for law enforcement by the international community, including a United Nations (UN) resolution and overcoming the underlying problems. Such efforts could simplify the work of the law enforcement forces, by allowing for a more expansive enforcement role, and begin to put in place the conditions for the more normal and legal exploitation of the waters off the Horn of Africa. After all, some Somalis claim that it was illegal fishing and illegal dumping of waste that led them to piracy.. It would be much easier if immediate identification of pirates was possible; regrettably, pirates no longer conform to the hackneyed dress code of the fictional character. Otherwise the Earth observation satellite or unmanned aerial vehicle equipped with parrot detector, wooden leg spectrometer, or eye patch add-on would be in its element and the normal processes of picture compilation could be sidestepped. Real-world operations make boundaries and distinctions much harder. Those at sea need help to make the operational and tactical decisions that can make their mission successful. The first step is to simplify the nature of the law enforcement operation so that maritime forces deal with persistent maritime disorder and contain all crime. This would make it easier for commanders at sea to act on information that indicates perpetrators intend to commit a crime. Presently there is no crime of intent to commit piracy the crime occurs only after the act. It would then be easier to use modern collection systems to spot, for example, anomalous behavior that may indicate the intent of perpetrators to commit any type of criminal activity, rather than facing the current problem of correctly classifying or identifying pirates.. Ultimately, the approach of the international community to the symptom of piracy arising from persistent maritime disorder needs review. If the underlying problem is addressed so that crime of any type is tackled, modern collection systems and

9 9 analytic methods will be able to play a crucial role in preventing piracy and capturing pirates, as well as returning a sea to normal activity. The full article, published in Earth Imaging Journal can be accessed at: insightswhat%e2%80%99s so hard about stoppingpiracy Kowtowing to Pirates' Ransoms Fuels Maritime Piracy This commentary is also by Laurence Smallman of RAND Corporation and it appeared in Bloomberg Government International business practices encourage piracy in the Gulf of Aden and work against national and international interests. The business community needs to examine its practices or piracy will continue to flourish. Some 33,000 ships a year currently transport oil, gas, manufactured goods, raw materials and food through shipping lanes around Somalia. Pirates in the Gulf of Aden on the eastern horn of Africa have captured more than 1,600 vessels in those waters in the last five years. Major shipping owners and the International Transport Workers Federation believe that to pay ransoms is the easiest option. Pirates working out of Somalia got $238 million in ransom money in 2010, up from $177 million in 2009, according to the nonprofit One Earth Future Foundation. Given the high cost of arming or selfprotecting every ship, many ship operators accept the risk of hijack. Piracy Pays With the enormous number of vessels that traverse the Gulf of Aden, the risk of a pirate attack is only about 0.5 percent. Still, more than 600 crew members are being held, according to the International Maritime Bureau, with their ships in pirate dens in Somalia, a country where piracy pays far more than the average annual salary of $600. The problem of piracy will continue indefinitely, partly because the maritime industry uses open registries to flag their ships under states with limited restrictions, including political control. This practice eludes U.S. and other national government policies, directives and laws prohibiting paying ransoms. Some ship owners figure that though ransoms are large, their overall cost is small compared with other business expenses. For example, annual card fraud in the U.S. was reported as $8.6 billion by the Aite Group in The costs of dealing with hijacks ransoms, payments to negotiation teams, payments to banks to get small bills and move the money internationally, and for delivery of payments was estimated at $456 million in 2010, according to One Earth Future. That cost was passed on to consumers. Avoiding Delay Paid fast, a ransom payment leads to early release, which many ship owners find preferable to protracted negotiation and then intervention by international forces that engender further delay. Time is money. Left unchecked, Somali piracy threatens to interrupt the supply chain. The efficiency and effectiveness of the maritime trading system, upon which almost every facet of our modern life depends, is built on the ease and flexibility of free navigation.

10 10 upon which almost every facet of our modern life depends, is built on the ease and flexibility of free navigation. Some companies have chosen to avoid the advantages of Suez transit. They route via the Cape of Good Hope south of Africa, which takes about two weeks longer. The extra time and fuel are considerations as fuel prices skyrocket. Environmental Risks International businesses and the maritime industry need to understand the implications of accepting piracy as a business cost. Piracy could lead to horrific environmental risks for Africa. All vessels have the potential to cause pollution if incompetently handled. The fuel from a large ocean-going merchant vessel cast aground deliberately or inadvertently by pirates could pollute extensive lengths of coastline. Dramatically worse pollution would occur if a super tanker spilled its oil. A large-scale spill that polluted East African fisheries would lead quickly to continental hunger. Cleanup would be severely hampered by Africa's lack of resources. The effects would make the impact of the Deepwater Horizon spill seem minor by comparison. The human cost to the crews and their families must also be considered, and for some this is paramount. There are very strongly held opinions among some owners and seafaring representative bodies that ransom payments are the correct, final response in the event of a successful pirate attack. And pirates will attack more robustly, including the thousands of smaller vessels for which ransoms, and recently murders, resulted. Barbary Pirates History holds some lessons. Barbary piracy peaked in the mid-1700s and remained a significant problem until The U.S. Navy was created to go after Barbary pirates, especially after the failure of tribute payments by the U.S. and European nations. Problems on sea persisted until France invaded northern Africa and provided effective governance on land. Somalia's sea disorder begins on land. Unlike in the Barbary wars, the bulk of merchant ships today are in open registries, not under the flags of nations with large navies. Open registry nations Liberia and Panama don't have navies and can't protect merchant ships from piracy. International businesses shipping under those flags unfairly expect protection by traditional navies. There's little bridge between nations and international ship owners on this point. Meanwhile, making piracy a business cost is unacceptable as part of a wider national policy for dealing with an international problem. Nations and international organizations have the right and responsibility to determine policy and lead action. Instead of fanning piracy, international businesses need to heed policy. Ransoms in the short term can only lead to more problems in the long term.

11 11 Sharing the burden Andrew J Shapiro, the US assistant secretary for political and military affairs, agrees that African countries need more support, given the complexity of the challenge. Prosecuting pirates can be an incredibly complex proposition in today s globalised world, he said in a paper on anti-piracy policy presented last year to an American Law Review symposium. The realities of international shipping and global commerce are such that in any given piracy case you could have suspected Somali pirates intercepted and apprehended by a British naval vessel after trying to attack a Liberian-flagged ship, owned by a Canadian company, crewed by Ukrainians, Indians, and Filipinos, with a Russian captain and carrying cargo owned by a Turkish company, en route for delivery to a company in Dubai. And the case could be taking place in a courtroom in yet another country, like Kenya or the Seychelles, which are both currently prosecuting piracy cases. The logistic and diplomatic challenges presented by such a scenario are immense. Referring specifically to Kenya and the Seychelles, Mr Shapiro continued, The burden currently shouldered by these countries must be shared more broadly both within and beyond the piracy-affected region. The cost of this crime is borne globally. The cost of combating and defeating it should likewise be borne by many states in all corners of the world. Although Kenya and the Seychelles have signed pacts with the European Union (EU) and the US to try suspected Somali pirates captured elsewhere in return for financial and security assistance. ultimately long-term solutions must address the source of the problem: the political instability and ongoing warfare within Somalia itself. Somali Pirates: An Expansive Interpretation of Human Rights This is the title of an article by Amitai Etzioni 6 was published in the winter issue of the Canadian Naval Review. The initial paragraphs of this article state: Sometimes a complex issue can be captured in a few simple words. Thus, to quote a Wall Street Journal reporter prosecuting suspected pirates detained in international waters has proved difficult. Indeed, despite the fact that there has been an increase in piracy in the Gulf of Aden and Indian Ocean pirates have taken hostages, terrorized shipping and imposed a considerable economic burden on seafaring pirates have been paid off, and even when caught, they have not been detained or prosecuted. And very few pirates have been confronted and killed. This is puzzling given that piracy has for centuries been considered a serious offence by most if not all states, and pirates were regularly killed or executed after, at most, a perfunctory hearing, by the captain of the ship that captured them. The change can be explained by many factors, but this article focuses on one the effects of the interpretation of the human rights extended to pirates in recent decades. The main argument here is that the human rights extended to these pirates were at least initially interpreted in such an expansive way that they prevented proper attention to two basic common goods: the safety and 6 Amitai Etzioni is a Professor at e George Washington University and the author of Security First: For a Muscular, Moral Foreign Policy (Yale, 2007).

12 12 livelihood of civilians; and the right to freedom of navigation in international waters. In this way, the expansive interpretation of human rights violates a legitimate balance between rights and public safety. It concludes with the following statement: This article suggests that it is time for a reexamination of the way pirates are treated. Few would disagree that they pose a serious threat to navigation of the high seas. The level of threat has been rising over time, the business is lucrative and the costs imposed by law enforcement authorities are small. Given that piracy has been considered a serious offence for centuries, given the relative ease with which pirates can be identified (compared, for instance, to terrorists), and given the growing harm pirates are inflicting, one would expect that this threat to the common good could be more readily addressed than many others. The full Etzioni article can be found in the following issue of the Canadian Naval Review: /vol6num4.pdf