The movie, “Captain Phillips”, which is based on a true story, is about an American cargo ship that was hijacked in the Gulf of Aden by Somali pirates. It showed America the violence, fear, and motives of piracy. In 2011, cargo ships along the Horn of Africa--more specifically the Gulf of Aden-- reached a peak in hijackings. Obviously, the pirates have a negative externality on the lives of the sailors, but they also create a negative externality for economy in countries around the world.
The goal of Somali pirates is to hijack a ship that sails in their area, capture the crew, and demand a ransom. This ransom will help provide for their country’s, family’s and own needs. The amount of money taken by the pirates is astonishing. According to the article by Brad Plumer in the Washington Post, “Since 2008, Somali pirates operating in the Gulf of Aden have made about $120 million per year in net profits.” Because of these pirate attacks the shipping costs in this area have increased by eight percent. Over the last several years these raids have cost the shipping industry between $900 million to $3.3 billion per year increasing to $6 billion in 2012. These cost increases have gone toward increased armed security, ransom payments, fuel, and insurance premiums. Figure 1 shows the various cost increases to ship in the Gulf of Aden area. Two of these costs that are noted in Figure 1 and may be a bit surprising are increase in speed and labor.
The idea behind increased speed is to provide more gas for the ships in order to have higher speeds to out run the pirates. The second cost, labor, refers to the need to pay higher wages if the ship sails through the High Risk Area as it is considered hazardous and a higher pay is needed.
Because more money for the shipping industry is going toward security of their cargo ships, the opportunity cost increases dramatically. Other investments could be toward bigger ships, bigger/more cargo, and more ships. Spending money on security costs is important, however it is making international trade more expensive. Not to mention that piracy flourishes in one of the world’s most important trade gateways, stated CNN. It is unfathomable to see that $6 billion is invested toward ship protection. If you think about it, it would be cheaper, but unrealistic, if the shipping industries would hand over the $120 million to the pirates. The Washington Post article states that $1.3 billion in extra security costs for the cargo ships would be enough to employ 1.5 million workers in Somalia at current wages.
Obviously piracy is a problem for all countries trading in this area. There have been many debates on how to handle the piracy to reduce the amount of ships hijacked. One idea already taken into action is increasing security of the ship with guards and naval escorts. This has decreased the amount of attacks since its peak in 2011, CNN reports. According to the article, Somali pirates cost global economy $18 billion a year, “Piracy is a symptom of the breakdown of Somalia’s political system...Go after the system, not just the pirates.” In essence, the Somali pirates have cost overseas trade billions of dollars in protection which has made trade more expensive.
In conclusion these increases in expenses trickle down to cost the end consumer more as the increase in costs forces the merchants to increase the price of their products as they seek to get them to market.
Works Cited
Kermeliotis, Teo. "Somali pirates cost global economy '$18 billion a year'." CNN. Cable News Network, 12 Apr. 2013. Web. 2 Mar. 2014.
<http://edition.cnn.com/2013/04/12/business/piracy-economy-world-bank/>.
Plumer , Brad. "The economics of Somali piracy." The Washington Post . The Washington Post , 3 Mar. 2013. Web. 2 Mar. 2014.
<http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/03/the-economics-of-somali-piracy/
>.
"The Economic Cost of Somali Pirates 2012." Oceans Beyond Piracy . N.p., n.d. Web. 2 Mar. 2014.
<http://oceansbeyondpiracy.org/sites/defau
I loved reading about this topic Ang! I remember going to see this movie in the theatre. One thing that I am surprised we haven't done yet is find a alternative route to ship goods. Why do we keep going where the Somali pirates are? I know there aren't many options, but seeing how much money we are wasting by getting hijacked by the pirates, we should invest in making another waterway for ships to go through. I had no idea that the Somali pirates had cost us $18 billion a year! That's insane! America should calculate out the marginal benefit and the marginal cost of opening up another waterway instead of going the usual route and how much money it would save us. Or, we should look into how much it would cost to get high speed ships to outrun the pirates. Overall, nice job!
ReplyDeleteI most definitely agree with how she talks about that security cost is important but however it is also very effective on the international trade. If we keep getting hijacked then hope is lost I don't get if this is a repetitive cycle then why don't we make better and bigger ships? I'm still in shock that this is still happening and the pirates are continuing to gain money
ReplyDeletePirates always seemed to be something of the past, but your post brings them into a very current context. It's crazy to think that increasing the speed of the ships is nearly equal to security equipment and guards, in terms of the overall cost. Are these statistics suggesting that faster boats are just as effective as sentries? Also, your proposed "solution", simply giving the pirates $120, does seem like less work--albeit not practical at all!
ReplyDeleteThis was such an interesting topic to choose! I never associated the negative impact of pirates on an economy, especially since we typically see pirates as a thing of the past! It is fascinating to see just how much profit these people make by committing a crime and stealing from cargo ships. It seems crucial for governments to put aside money just to pay off ransom prices when that money could be going towards education or other public needs. I agree with your idea of just giving them the money, but I doubt the Pirates would be practical and just accept it, they would continue to work for more. I also like how you mentioned opportunity cost of the shipping industry to show just how many people and industries are affected by this continuous burden of pirating!
ReplyDeleteI found this so interesting! I watched "Captain Phillips" and I loved it. It was so captivating to see that pirates still exist and remain a threat for cargo ships. I like that you mentioned that the amount that we spend protecting ships with increased speeds and security equipment costs more than it would to employ workers in Somalia. Interestingly enough, pirates of Somalia are so very poor many don't have any other option than to try to hijack ships as I noticed from the movie. Therefore, if we focused on teaming up with the United Nations and developing a foundation for economic growth in Somalia that offered jobs to pirates, perhaps we wouldn't need to spend so much trying to protect our cargo ships.
ReplyDeleteConsidering how popular the movie “Captain Phillips” was, it was a great idea to have that be the inspiration behind choosing your topic! This article was very interesting. Most people, including myself, know that piracy has definitely peaked over the last couple years, but I had no idea that it had peaked to this extent. I mean $6 billion in extra security precautions is ridiculously high. Though it’s true that Somali is having issues with their government, it’s really unfortunate that their citizens’ incomes is now stemming from piracy. This was very thought-provoking and well written!
ReplyDeleteWow, this is such as interesting topic to choose. I never thought that pirates still had such an impact on our economy. I always thought they were just characters of the past that schools use as their mascots or little kids dress up as for Halloween. I guess I should think more about some of the things I buy and weather they could've been victims of the Somalian Pirates. After reading this I didn't know that it was such a high risk job as a cargo worker. I feel that your solution was a very well thought out one. Giving them money would eliminate the cost of harming the crew which is a good one.
ReplyDeleteWow, I knew that pirates were an issue in certain areas, but I didn't realize the extent of the problem. I personally haven't seen the movie you're referring to, but I should take a day to watch that, because I think it will help me better understand this piracy issue. And even when I heard about pirates hijacking ships, I never stopped to consider how they were economically effecting nations. It's absurd that this is costing millions and millions of dollars, either because they're stealing that much or because boats are investing in protection. I agree that maybe the security on the boats should just be increased by adding guards and naval escorts. Great use of vocab by the way, lots of references to what we've learned in Econ.!
ReplyDeleteI found it really surprising that out of the $6 billion that piracy causes, only 1% of that goes to paying ransom money. If the goal of the pirates is to cause economic damage to other countries, they are definitely succeeding as the cost of adding protection and insurance is kind of ridiculous. I would say that it's just easier to pay the ransom than go through the trouble of getting the military involved if it became a hostage situation.
ReplyDeleteI thought that your idea was progression was really well done. I wonder if instead of increasing security... why not work to improve the economy of the countries where these pirates are coming from... mainly Somalia. If the economies within the country become better their GDP will increase leaving less incentive for pirates to make money through this illegal activity. Obviously, there is no clear solution to this problem though and it will be interesting to see what the future holds for the sea.
ReplyDeleteWhen reading your article I wasn't sure what to expect. Yet when I began reading it, the article gave me an in site to a world that is unknown to us all. I never had a grasp on how bad the pirates were or the reasons why they do what they do. I didn't know how much money is going into making ships faster, fuel and how much money we used to pay for the ransom. This does have a large effect to our economy more than we know or expected.
ReplyDeleteThe threat pirates have on the cargo ships is huge! Spending 18 million dollars a year on Somalian Pirates is way to much. It causes us to protect our ships with increased speeds and security equipment which ends up costing us more than it would to employ workers in Somalia. Additionally, it is fascinating to see just how much profit these people make by committing a crime and stealing from the cargo ships. Paying the ransom might be a better option so we don’t need to get everyone involved and cause more problems. Over all, we shouldn't have to pay that much to protect our own ships and It might be smart to consider paying the ransom.
ReplyDeleteI liked that you chose a topic that is current and has an incredibly large impact on our economy. I knew that the pirates were taking there people for ransom, however I had no idea that they were stealing this much. I think what's even more surprising is how long this has been going on for and the only action we've taken has been spending more money on ship protection and labor. Out of all of our transportation in America ships have the lowest security and I don't believe that, that number is going to increase much. Instead of continuously spending all of this money I think that if would be wiser to find new routes. Even if the new routes cost us more money, I think that it would still cost less than the 1.3 billion we're currently spending. Hopefully changes are in the near future.
ReplyDeleteWhich of the counter-piracy actions do you think helped the most overall? Since there has been a decrease in attacks since 2011, the actions must be working efficiently. Still, it remains a big problem for shipping and trade overall, but would it be cheaper to continue the current actions at $6 Billion or to intervene in Somalia’s broken political system? Either way the demand for transporting items of various nature is high enough for companies to continue supplying them in such a high risk manner.
ReplyDeleteNot only was your article really enjoyable to read, it was super infatuating. Reading your article makes me want to see the movie “Captain Phillips” and read and find more research on this topic. Though agreed that it would be cheaper to pay off the pirates and how unrealistic it is, how about instead of spending 1.3 billion dollars on protection, they spent it on new ships to catch the pirates to eliminate the problem. Eliminating the problem as a whole would lower cost of the cargo ships and wages of the sailors in the long run, which means making profit to the companies who are using the bay for transport. T
ReplyDeleteAng! I really enjoyed reading about this topic. I remember seeing the movie in theaters. It is definitely an incredible story. I'm glad that they are doing more to prevent piracy from occurring as much as it used too. I was a little shocked by some of the statistics though. I find it surprising that they would only contribute 29% of the $6 billions to security equipment and guards. I believe that they should be using a majority of the $6 billion in this area. This is because having security and guards is one of the only ways to prevent the pirates from getting on the ships in the first place. In the movie they didn't have any security or guards and therefore the ship was hijacked. I also find it surprising that they would only contribute 19% of the money towards military operations. I believe that this is the second most important area. This is because once the ships are hijacked the only way that they will ever have a chance at survival is if the military gets involved. I'm so glad that you wrote about this topic and I glad I know more about what is being done to decrease piracy around the world.
ReplyDeleteGreat article on the pirates down by Somali. It is amazing how they have made so much money from ransom. Even though there is such a large cost it isn't worth getting the US military involved. They are at the point were people care about what they are doing but not quite enough to get military involved to stop the raids. Great article though.
ReplyDeleteThis article intrigues me the most. I loved the movie "Captain Phillips" and seeing this article definitely got my attention. I think that it is ridiculous how much money the pirates make, that is more money than people in the US per year. Watching the movie when the pirates asked for millions of dollars, they don't seem to understand that we don't live with that money either, they are asking for an unrealistic amount for even Americans. I also am astonished that we decide to put so much money into protection while we have the strongest military of the world, we shouldn't have any issues with protecting our own cargo ships. This was a very interesting article, I'm glad I got to read it.
ReplyDeleteThe amount of impact these pirates have on people is astonishing and their income is even crazier. These people have dramatically affected international trade and the safety around the coast. I believe there pirates will probably not stop and the price to ship goods through those areas will rise higher and higher. It is unfortunate this is happening, but the problem will only get worse without action. All of the money being spent on cargo and ship safety could be used much better somewhere else, but it is needed at this point. Until the world figures out how to get the pirates out of that region, this money spent on safety is vital.
ReplyDeleteWhere does the money the pirates get go? It doesn't seem like they make a whole lot of money. But I agree that it is a big problem and is costing a lot of money, not just with ransoms, but then trying to improve ships so that they wont have to pay more ransoms. It seems like they are loosing a lot of money from trying to figure out ways to evade the pirates instead of just taking a different route. How much more expensive would it be to send ships around the horn of Africa farther from it's shores? As long as the pirates keep making money they wont stop what they're doing.
ReplyDeleteWow I never realized how piracy—which is occurring in the middle of the ocean—could have such an effect on the goods I purchase here in the states. This is defiantly an example of how an increase in resource prices—because it is so expensive to ship them in the high rate areas—will cause the supply to decrease because the items are more expensive to make. This then will affect the consumer and the quantity demanded, because producers will have to increase the cost of the product in order to account for the rising resource prices. I guess it comes down to how to stop the piracy—in the most efficient and cost effective way possible—from occurring in the first place
ReplyDeleteI recently watched the movie "Captain Philips," so this article was really interesting for me. It's kind of odd to view a situation such as pirating from the other side, since usually it's negatively affecting our country. But I’m glad to hear that the Semolina families are doing well with their new booming economy. For their pirates, the marginal benefit is much higher than the marginal cost of losing their life. This is gutsy way to make a living, but they are in short supply of necessities for life. Some say that the pirates NEED to do this.
ReplyDeleteThe topic of your article was very interesting and I really enjoyed reading it. I never thought about how much these pirates profit from hijacking ships, taking cargo, capturing victims, and demanding ransom. I knew it was a problem, but I didn't know it was still ongoing and I never considered the impact it would have on so many lives. These pirates obviously don't commit these acts for fun, but I never realized the millions and even billions of dollars it would cost to pay ransom, replace/recover lost cargo, secure future ships, rescue the victims, and improve ship performance to avoid another attack. It would also affect the people waiting for the shipments to come in, because they now have to pay more money to receive their packages. This has obviously been effective for the Somali pirates, but it is a tremendous waste in money for the countries affected by these acts and would cause major changes in the economy. It also puts even more lives in danger by adding naval security, regardless of their abilities to protect those around them. This is overall a huge issue and needs to be resolved before more lives and money are lost. Maybe changing the route of the ships into safer waters would be a more effective approach?
ReplyDeleteIt is interesting to see that Pirates are doing so well for themselves. If you think, they just started out as a bunch of scummy old guys with long beards and eye patches. Now they are making $2 million a year, and are able to support their families quite well. Pirates aren't the nicest people in the world, but they are turning out to be some of the richest. It will be interesting to see where pirates are in about 10 years, if they continue the trend, they could be making $10 million a year, and make it onto the Forbes list. This article really changed my views on those wealthy pirates.
ReplyDeleteThis was an outstanding article! It was crazy to find out how much effect piracy has on the goods we purchase here in the United States. This is a prime example of an increase in resource prices. The consumer and quantity of demand will be affected because the producers will have to raise there prices in order to balance out the high cost in resources. I think when most people think of pirates they think of Jack Sparrow from Pirates of the Caribbean fighting for gold so this article was very eye opening.
ReplyDeleteThis was a very fascinating to me, the movie “Captain Philips” was very eye opening. It is truly astonishing to think about what happens halfway across the world. I mean before that movie who knew what was happening in the oceans off the coast of Africa. These pirates effect our economic growth as a country and cost many countries millions of dollars. We as Americans don’t live with the unrealistic amounts of money in which they demand for in ransoms. I am glad to hear however we are starting to make a stand and provide security for ships making their journey. Maybe we can make the Pirates think twice about stealing from America and interrupting our trade with other countries. Talked about earlier the marginal benefit is much higher than the marginal cost of losing their life. Somalia could but these tough hard working pirates to better use in a proper economic system.
ReplyDeleteI think as Americans, we are really sheltered to those parts of the world where piracy is actually a big ordeal. I like how you choose to bring in the movie, "Captain Phillips," which I'm sure many of us have seen, which made it really easy to relate to your topic. I also like how you included the vocabulary of negative externalities to describe the impacts of piracy. And although I agree with you that it wouldn't be the right thing to do, it's almost the easiest thing to do, if the Somalian shipping industries gave the pirates $120 million instead of spending the $6 billion in security. Overall nice job, and way to make your post really relatable!
ReplyDeleteIt is such a shame that so much money has to be spent on piracy. This debate is similar to many other debates in regards to security. In terms of security of ships, airports or any other high risk areas we must compare the marginal benefits with the marginal costs. We have to ask ourselves how much does safety cost? You have to keep in mind that although 6 billion dollars is a large amount of money to keep our ships safe, it has to be done because if the workers on ships did not feel safe in their workplace, they may quit their jobs and there would be a shortage of employees. With not enough employees shipments would take much longer to get to their destinations which would hurt the economy.
ReplyDeleteIt's so interesting to hear about piracy. Since we live such a huge developed country, we don't really hear anything about piracy and all that it entails. I had no idea they received so much money from capturing people and getting a ransom back. I think it is very sad though that they don't really have a home or family except on a big ship or boat and that working on land just wasn't working for them. I think something that we should be thinking about is how to find a way around the Somalian Pirates so we don't loose billions of dollars worth of ransom money and supplies and worry about our citizens being hurt or killed.
ReplyDeleteI agree with Daniel. Security is a huge issue we are faced with, especially out at see where direct security cannot be supplied. These pirates have take a have take a major advantage of the weak security on these ships and have caused a negative externality by causing countries to have to pay more by now needing security/escorts to help protect their cargo ships on the travels. It is crazy to think that the extra amount of money spent on security would be able to employ 1.5 million workers in Somalia at their current wages. The marginal benefit of adding extra security outweighs the marginal cost because keeping these cargo ships protected would allow for less travel times for cargo ships and would be more beneficial for the economy because countries would not need to pay ransoms anymore.
ReplyDeleteenjoyed reading about hijacking, what i think might be a good idea to outsmart them is by sending out a RC boat or have a ship military ready for the pirates to attack the ship but then have the military pop up from below deck and fire back at them.
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