Monday, January 31, 2011

Malaysian Navy Commandos Strike

I was just reading about Johnny Depp and his engaging movie role as the suave Captain Jack Sparrow when I was reminded of the daring exploits of Malaysian and South Korean Navy commandos on January 20, 2011. The former came to the rescue of Malaysian-flagged MISC-owned tanker MT Bunga Laurel and rescuing the 23 crew members from Somali pirates in the Gulf of Aden – a waterway sandwiched between Somalia and Yemen and is the main sea route between Europe and Asia where vessels ply the Suez Canal. Seven pirates were successfully apprehended.

Somalia’s dysfunctional government has contributed to this state of lawlessness. Piracy in the Gulf of Aden now presents a very worrying threat to global commerce, escalating to an almost ungovernable point. But before we are tempted to shoot them on sight, let’s examine this profitable activity from a purely business perspective!

I contend that Somali buccaneers are entrepreneurs. Where earlier sea bandits were satisfied to make off with a dinghy full of booty, pirates who prowl northeast Africa's Gulf of Aden hold captured ships for ransom. This strategy has been fabulously successful because the payoff is lucrative, and the number of pirate attacks has skyrocketed.

Scott Carney writing in Wired Magazine dated July 13, 2009 offered an interesting read of his economic analysis of the Somali pirate business model. Like any business, Somali piracy can be explained in purely economic terms. It prospers by manipulating the incentives that drive international maritime trade. The other parties involved – shippers, insurers, private security contractors, and national navies – stand to gain more (or at least lose less) by tolerating it than by putting up a serious fight. As for the pirates, their escalating demands are a method of price discovery, a way of gauging how much the market will bear.

The risk-and-reward calculations for these players arise at key points of tension: at the outset of a shipment, when a vessel comes under attack, during ransom negotiations, and when a deal is struck. As long as national navies don't roll in with guns blazing, the region's peculiar economics ensure that most everyone gets a cut.

Don’t forget that an ordinary Somali earns about $600 a year, but even the lowliest freebooter can make nearly 17 times that – $10,000 – in a single hijacking. Never mind the risk; it's still very much less dangerous than living in war-torn Mogadishu (Webpage

But this situation cannot go on. Already, some countries are taking a hard-line approach to combating this menace since other powers seemed to take the Somali piracy issue lightly. The European Union’s naval force refuses to raid hijacked ships out of concern for the safety of hostages, but frustration is steadily rising and paralysis is quickly setting in. Just patrolling the waters will not deter Somali pirates and they have been relentless. For how long will these countries allow themselves to be coerced and their ships hijacked and their crew ransomed? This will only entice even more Somalis and perhaps others to move into this money-making line of work! Indeed, Malaysia has sent a strong message to these pirates.

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