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Modern-day pirates using high-speed boats, brandishing automatic weapons and long knives, violently attack ships around the world. They leave crew members injured or dead, the cargo sometimes stolen and the ship cast adrift.

Actual accounts of pirates confronting ships read like scenarios from a grisly movie:

- Several pirates armed with machine guns and rocket propelled grenades boarded. They kidnapped Master and Chief Engineer and left. Later, both kidnapped crew were released after a ransom was paid.

- Five pirates armed with M16 and AK47 rifles in a speedboat came alongside the tug towing a barge ... They kidnapped the Master and two crewmembers. After 74 days in captivity, the two crewmen were rescued when the Philippines military launched an assault on a militant stronghold in Jolo (capital of Sulu Province, the Philippines). The rescued crew were in good health. The military is trying to locate the Master.

While any pirate attack is frightening, the besieged vessels represent only a tiny percentage of the thousands of ships moving goods across the world's oceans and seas, and affect world trade only slightly.

The economic cost of piracy is difficult to estimate, according to John Burnett, author of Dangerous Waters, an account of modern piracy on the high seas, because some incidents of piracy go unreported. A ship owner whose ship and crew have been attacked typically does not want "to tie up the vessel for lengthy investigations," he says.

"If there have been no injuries or deaths, then better to absorb the thievery, and carry on. Also, a ship might not want to report a successful attack because it indicates that the ship's crew was not as alert as it should have been--perhaps no fire hoses blasting outboard, no transom illuminated and no extra crew patrolling the aft decks."

Professor James Warren of the School of Asian Studies at Murdoch University in Australia puts the economic cost to maritime trade at $25 billion, basing the figure on a study done by Japanese analysts several years ago. This figure includes cargo scams, attacks and hijackings. The loss, while in the billions of dollars, is hardly a big-ticket item considering the $2 trillion generated by maritime commerce each year.

The chance of a tanker being attacked by pirates is also very small though piracy has been around for a long time, observes John C. Fawcett-Ellis, general counsel, regional manager Asia Pacific, Intertanko, an association of independent tanker owners. "Most of the assaults have been minor," he says, "very few indeed. It is not in a shipper's mind to think that a ship will be attacked." He does admit that "one attack is one too many, and shippers and ship owners are aware of the problem."

ATTACKS DOWN, MURDERS UP

The number of attacks by pirates decreased from 445 in 2003 to 325 in 2004, according to the International Maritime Bureau, the division of the International Chamber of Commerce that records such attacks. Distressingly, the number of crew members murdered by pirates in 2004 climbed to 30, from 21 in 2003. In the first six months of 2005, the number of reported piracy attacks decreased to 127 compared with 182 in the period in 2004. Ships were boarded in 92 instances, and six ships were hijacked. There were no reported murders of crew members.

With 93 attacks in 2004, Indonesian waters have the highest number of attacks for a single area. This is down from 121 in 2003, but they still represent almost one-third of the attacks worldwide. In 2004, there were 37 assaults in the Malacca Strait, a waterway between Sumatra and the Malay Peninsula. Its attraction for pirates is not difficult to understand. The 600-mile-long strait narrows to less than 24 miles at one point, and each year about 50,000 ships sail through the strait, carrying about half of the world's oil and one-third of its trade.

The IMB reports that pirates favor bulk carriers, though they also prey on small yachts; oil, gas and chemical tankers; and most other seagoing vessels. Many pirate attacks are not reported on fishing boats, small coastal freighters and pleasure craft where the crew is murdered and the ships stolen. Usually the pirates loot the ship of cash and any saleable items. Sometimes they are after cargo such as palm oil, sugar, steel and tin, which are easily sold on the black market.

AT A LOSS FOR CLAIMS

"Most of the attacks have been in the gray area between outright piracy at high seas and criminal activities in ports," says Jan Fritz Hansen, director, Danish Shipowners´ Association. "Recently, we have been most affected in waters off West Africa. These days, pirate activities have very much been directed toward the crew, their valuables and other things of value in the crew area." He said that previously, there was a greater focus on stealing valuable cargo. "Luckily," he adds with relief, "it happens rarely--only a few incidents over the last years."

Nick Whitear, marketing director, Thomas Miller P&I Ltd., which manages the U.K. P&I (Protection & Indemnity) Club, says it is becoming increasingly difficult to distinguish what, in insurance terms, amounts to piracy. "Some so-called acts of piracy may be more akin to acts of terrorism and, therefore, be excluded from P&I cover," he says, "and fall within the scope of war-risks cover."

"Generally speaking," he continues, "protection and indemnity claims arising from piracy attacks are extremely rare, and, at least in the U.K. P&I Club's case, so rare that it does not have the volume of data to produce meaningful statistics on piracy hot spots, the type of ships most at risk and so on." There have been no major piracy claims from U.K. Club members this year. He said the U.K. Club does not normally cover the payment of ransom demands related to a kidnapped crew. "Specialist kidnap and ransom policies are available from other market insurers," he adds.

Terry Montgomery, ocean marine manager, Chubb, has worked in marine insurance for 32 years. He acknowledges piracy is a problem but not a major problem for cargo insurers.

"It's been 10 years at least since Chubb has seen a claim for piracy," he says. "Back then, cargo such as cigarettes and consumer goods were stolen by pirates, stuff that could be sold quickly on the black market. Today, I understand, palm oil and tin ingots are among pirates' prime targets."

Ships that sail into areas that have been designated high risk have to pay higher insurance rates. In June 2005, the Lloyd's Market Association's Joint War Committee advised the London market that it had added the Malacca Strait to the list of high-risk areas along with the coastal waters of Iraq, Qatar and Somalia, bringing to 21 the total of at-risk areas. The Singapore shipping group protested the addition, saying the strait had become safer and that ships sailing in the strait would have to pay higher insurance premiums, which eventually could be passed onto to consumers.

PIRACY PREVENTION

Ship owners and shippers have developed risk-avoidance tools, products and techniques to combat pirate attacks and to hunt them down. Hansen of the Danish Shipowners' Association says measures have been developed to combat piracy. "Fast movement through potential risk areas and guards in ports are some of the measures--which for obvious reasons are kept secret," he says.

Weighing in against piracy, U.S. Secretary of Defense Donald Rumsfeld urged Thailand and neighboring countries to step up teamwork in fighting piracy in the Malacca Strait. Singapore has welcomed U.S. involvement; Malaysia and Indonesia have said they are handling the problem themselves.

Numerous risk-avoidance technologies and other protection measures are available for individual ships. Safety systems such as AIS (Automated Identification System), INMARSAT (International Maritime Satellite) and ShipLoc pinpoint the location of a ship immediately, but with their fast boats and knowledge of the myriad islands and inlets, pirates often are far away by the time the marine police reach the ship that has been attacked.

The Inventus UAV (unmanned aerial vehicle) is an aerial reconnaissance system that provides early warnings of suspect or unauthorized craft movements to a law-enforcement authority. Secure-Ship is a nonlethal, electrifying fence surrounding the whole ship. Some ship companies have hired security companies to train their crews on how to prevent an attack, and how to respond when there is one.

The IMB advises shippers that if security personnel and all available protection and information equipment are aboard their vessel, "pirates are likely to know about it, and the risk will be minimized."

RONALD GIFT MULLINS is a freelance insurance journalist, based in New York.

September 15, 2005

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