Piracy and Attacks at Sea

How piracy off Somalia and attacks on ships in the Red Sea disrupted trade, raised shipping costs and prompted naval responses.

Around 80 percent of world trade by volume travels by sea. When ships face attacks, the costs ripple through the global economy.

Somali piracy

In the late 2000s, pirates operating from Somalia hijacked dozens of ships in the Gulf of Aden and Indian Ocean, holding crews for ransom. Piracy peaked around 2010 and 2011.

Costs included:

Ransoms, sometimes millions of dollars per ship.
Higher insurance premiums for ships passing through high-risk areas.
Armed guards and security equipment on ships.
Rerouting and higher speeds, which burn more fuel.
Naval patrols by many countries, including India.

Studies at the time estimated the total cost to the world economy in billions of dollars a year, far more than the ransoms themselves.

Why piracy declined

International naval patrols.
Armed guards on ships and better ship defences.
Best management practices, such as sailing faster and further from shore.
Improvements in governance on land.

The Red Sea crisis

From late 2023, Houthi forces in Yemen attacked commercial ships in the Red Sea. Many shipping companies avoided the Suez Canal and rerouted around Africa’s Cape of Good Hope, adding 10 or more days to voyages between Asia and Europe. Shipping rates and insurance costs rose sharply, and Suez Canal revenues for Egypt fell steeply.

Economics

Maritime security is a public good: all ships benefit from safe seas, so no single shipping company wants to pay for patrols.
Navies from many countries cooperate to provide it.
India’s navy has increased its presence in the Arabian Sea and Gulf of Aden, protecting shipping and rescuing crews.

The long way round

A container ship carrying electronics from China to Europe avoids the Red Sea because of attacks. Sailing around Africa adds nearly two weeks and extra fuel costs. The shipping company raises freight rates, and some of the cost reaches shoppers in Europe.

Thinking piracy only costs the ransom paid

Insurance, security, rerouting and naval patrols cost far more than ransoms. Disruptions can raise prices worldwide.

Key takeaways

Somali piracy peaked around 2010 to 2011, costing billions a year.
Naval patrols, armed guards and better practices reduced it.
Houthi attacks from late 2023 forced ships to avoid the Suez Canal.
Maritime security is a public good provided cooperatively by navies.