The past few months have been very interesting ones for anyone involved in sea transportation, especially those using routes close to the East coast of Africa. Increasingly, pirates, a group most thought had gone bankrupt years ago are fighting back.
They started out their expansion plans with a clear plan, going after numbers. Simply hire a low paid crew to take over ships, then ask for a ransom in exchange for the boat and everyone onboard. While they had limited equiptment to start off with, they have been reinvesting 20% of their ransoms according to their reports in order to acquire high tech GPS equipments but also increasingly impressive warfare in order to take bigger and bigger ships.
The Kenya government estimates that the Somali pirates were able to collect $150 millions in ransomes in 2008, not a bad number and a clear increase over the 2007 numbers. Thanks to their increasingly sophisticated equipment, the pirates are now also able to connect through high tech means such as the internet and text messaging that have enabled them to improve the efficiency of their operations.
There are some downsides to this investment though, here are a few:
1-They might have increased their size too quickly as they now seem to draw attention from US and other military groups that are looking to end or curve this serious problem. China is another country that seems to be increasingly concerned with the pirates
2-Unfortunately, it is very difficult to get any kind of verification of the financials as the pirates have generally not accepted any auditing of their books
3-Currently, the pirates have not diversified across the world making it too easy for military groups to limit their expansion. We will be looking into future conference text messages with pirate chiefs to determine if they have any plans related to this.
4-Given the very low cost of life, we are uncertain of the level of motivation for the pirates as they clearly have amassed enough money to slow down their operations while US military ships are out for them. We expect the 2009 Q3 and Q4 numbers to experience pressure with a return to full operations only in 2010.
One potential area of growth for the pirates is “pirate insurance”. They could charge a fixed fee for any boat going through the region that prefers not being attacked. This could even make life easier as such boats would require no work apart from collecting the fees.
If you wish to know more about the operations and perhaps place an initial investment, we recommend taking a cruise through the Gulf of Aden, you should be able to get in contact with pirates within a few hours….good luck!