Opting for a Really Big Deductible

Our fellow Chicago Boy, Steven den Beste, has posted some thoughts about piracy on his own personal blog. He thinks that the recent plan to allow NATO warships to form an anti-pirate patrol off of Somalia is not the optimal solution to the problem. Instead he thinks that a few heavily armed squads of soldiers, placed on a civilian ship as it traverses pirate infested waters, would do the trick.

I have been writing regularly about maritime piracy for years now. Most of my previous posts were lost when my former ISP abruptly terminated service, but the idea of hiring mercenaries for short term security in dangerous waters is hardly new. The concept of having regular military troops perform the same job merely transfers the cost from the private shipping company to the taxpayer.

But the same problem which prevented the shipping companies from hiring private soldiers keeps them from allowing government troops on board. And that problem is higher insurance premiums.

Back when I first became interested in the problem in 2001, ship captains who had to navigate through areas with heavy pirate activity were given $20,000 in cash. The idea was that the money was to be kept in the ship’s safe, and paid to any group of pirates who managed to make their way on board. Danegeld on the high seas.

But we all know what happens if you pony up the Danegeld. The idea that a mere $20K would satisfy a self respecting pirate band today is ludicrous. And it will probably get worse before it gets better.

Anyone interested in maritime piracy is encouraged to read the ICC Piracy Report, a free weekly update listing attacks on shipping. One thing that becomes painfully obvious very quickly is that pirate attacks are becoming more frequent, the pirates are demanding ever increasing amounts to return control of the ships they take, and the pirates are becoming ever more violent in an effort to coerce the shipping companies to pay up.

One would assume that the huge amounts demanded by pirate bands recently is a prime motivator for shipping companies to hire some mercs, but that is only if you discount the enormous number of vessels that daily move through the major shipping lanes. Four, eight, ten, a dozen ships might be held for big money, but hundreds more manage to move through those waters every day without having any problems. The increase in money paid to the insurance companies if troops were allowed on board is still greater than the cash paid out to the pirates.

Right now we are seeing a fluid situation that is trying to reach equilibrium. The pirates won’t stop because they get some really good money for attacking maritime vessels, and there is very little risk. The shipping companies will continue to pay ransom money as long as it is cheaper than increased insurance premiums. The pirates will continue to demand ever larger payouts as long as they are ultimately handed the cash.

If things are allowed to develop as they have been, eventually the shipping companies would begin to balk at the huge amounts that the pirates would demand. Then I expect the pirates would turn into terrorists, executing the captured crews in public and highly visible ways in an attempt to get the money spigot turned back on. It would only be at this point, with insurance premiums climbing because of the increased chance of murder, that the shipping firms would begin to look to resisting piracy in an aggressive and effective way.

The decision by NATO to begin anti-piracy patrols is probably seen by the shipping companies as a possible solution, and one that they won’t have to pay for out of their own pocket. It would work if the warships tasked to hunting down the pirates would actually shoot a few of them, but I really don’t expect that to happen.

17 thoughts on “Opting for a Really Big Deductible”

  1. What are a shipping companies’ legal liabilities if the crew (for instance) shot a bunch of pirates coming to board their ship?

  2. The answer is not to put mercenaries on a few vessels, at great expense and with the likelihood that that won’t be the vessel targeted.

    The solution is to allow the crews to provide their own defense. A couple .50s to inspire an attacking vessel to find somewhere else to be and light carbines and sidearms to deal with boarders.

    I expect these “pirates” would very quickly reevaluate their career choices.

  3. A cruise ship in the area successfully defended itself using a non-lethal sonic weapon. Equipping ships with such a weapon, perhaps swapping them from ship to ship as the enter and leave the area, might solve the problem without the training and political issues associate with lethal weapons.

  4. Civilization is built on the blood and tears of barbarians. The unwillingness to seriously hurt wrongdoers doesn’t speak well of our governing classes, or barring regime change, our future.

  5. I wonder if there wouldn’t be scope for so-called ‘q-ships’… fully-armed ships of war, but disguised as harmless, innocent merchantmen, sent as decoys… into the areas of greatest danger. This was done to great effect, to destroy German U-boats in WWI, drawing them out to attack what looked to be easy, soft targets. Right until the moment when the disguise came down and the guns were uncovered.

    I am almost certain that somewhere, somehow, someone has thought of us – and come up with an enticing variant for the hazardous waters off Somalia. Surely, somewhere – someone has not forgotten all the painfully learned lessons of the 20th century?

  6. I don’t understand – guns on board is somehow an existential threat, worthy of jacking insurance premiums more than that cited $8 million dollar ransom? I thought insurance companies were mostly rational – what exactly are they afraid of here?

    I could see the argument that a platoon of trustworthy armed guards costs more than, say, $8 million * 1% chance of being attacked, barely, although it seems hard to believe that a platoon would come to more than $80K/week – but insurance costs being prohibitive?

  7. Just BTW, some of the larger merchantmen, at least in the early part of the 19th century (East India) were hard to distinguish from ships of the line: state of the art and armed to teeth. Those not so well armed (almost all had at least a few small cannon) would sometimes carpenter and paint “gunports” along the sides of the ships. Effective camo from a distance and some were detailed works of art that made it difficult to discern from even a few fathoms.

  8. “I don’t understand – guns on board is somehow an existential threat, worthy of jacking insurance premiums more than that cited $8 million dollar ransom? I thought insurance companies were mostly rational – what exactly are they afraid of here?”

    You aren’t considering the scale involved.

    Literally hundreds of ships navigate those waters every day without anything happening to them. Add even a few thousand dollars a year per vessel and you can see that it just makes more financial sense to pay up when needed. I bet that the increase would be a lot more than just a few thousand per year, as well.

    Also, consider why fish form themselves into schools. The school attracts predators, but the odds of any individual fish getting eaten goes down. The same thing is happening here, as most shipping companies very rarely have to pay any money. When they do, it is so rare that they can absorb the loss with little trouble.

    The well publicized $8 million ransom is a statistical outlier. Most ransoms are much less, although I bet we are going to see the price go up if the pirates get away with this enormous score.


  9. 1) I think Sgt. Mom has it right. That was the first solution which occurred to me. Make piracy too risky to undertake. Convoys are overkill. These bozos aren’t governments, and probably aren’t organized such that they can replace losses. So putting ships in the mix which vastly increase the risk to pirate bands is the way to go.

    2) As an aside note, considering the subject, anyone else spot the fact that one of the recent pirate attacks allegedly saved Israel from an Iranian dirty bomb?
    At this point, I’d still classify it as “alleged”, because absolutely no “reliable” media source appears to have picked it up (all searches at this point show are blog references), but, if true, it’s… interesting

  10. One possible response is to not only escort convoys with military craft, but to also bombard any port which harbours pirates from the sea, paying particular attention to port buildings, presumed pirate craft and any building that looks larger or showier than the rest.

    After the first few times, the surviving civilian population would start to shun or exclude pirates from their ports as not being worth the trouble they attract; couple this with giving civilian ships free licence to open fire on suspicious presumed pirates and pretty soon the business of being a pirate will be more danger and hassle than it is worth.

  11. This is where the State is actually useful … in killing people and breaking things.

    Demand merchantment either arm themselves, or pay to have a State-provided an armed unit put aboard … as an employee safety issue.

    Set up Q-ships to collect pirates. Find out where they live, and then kill the damned pirates on the spot … and bomb their home ports into rubble. It shouldn’t take too long for people to hang pirates themselves rather than risk getting bombed.

  12. I think a dozen professionals armed with machine guns and guided weapons would turn any merchantman into a Q-ship.

  13. When I served aboard an LA class attack sub in the 90’s we were fired upon once near the south china sea by pirates…it was night time and I guess they saw our lights and thought we were something slightly bigger than the average fishing boat out there….in that area you had to surface transit for a day or more at a time…so we were making our way to Thailand I believe one night and we had people topside just sort of stargazing and hanging about…and suddenly bullets ping off the hull..the specialized steel used on those subs repelled the arms fire like gnats, but of course we buttoned up. According to the OOD, when they got close enough to see what we were they immediately bugged out and it seemed like it wasn’t more than a 6 or 8 man operation at most. We begged the Captain to blow them out of the water, but he had to follow protocol and just call it in to local law enforcement. Bah..I how I wished to serve on subs in the old days where they’d throw a gun i hour arms and have you go steal an enigma machine or something…except for the whole likely-to-wind-up-on-the-bottom part, that I could do without…

  14. On insurance companies and Danegeld:

    When I was finishing my PhD at Tulane in New Orleans I had a part-time job as a security guard on the wharves on the Miss.River waterfront. In those days N.O. had what is known as an “open wharf” system. But even in those pre-Katrina(by over a quarter century) days the insurance companies were pressuring the Dock Board and the Port of N.O. Authority to go to a closed wharf system like Houston had then the better to prevent theft/pilferage.
    One day I had occasion to engage in idlyl conversation with a Customs officer and asked him if there was any difference in the theft rates between the two ports.
    “None at all he replied, Houston’s system just forces the thieves to be more creative.” The bottom line, he said, was that New Orleans wasn’t going to undertake the vast expense of creating closed wharves
    until the annual cost of higher insurance rates and theft losses were greater than the annual cost of paying off the bonds that would be floated to provide the money to secure the port. (New Orleans eventually did create closed wharves but did so via tax-payers dollars disguised as flood control via retaining walls & gate system which doubled as security “fencing.”)

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