Impact of Piracy in the Gulf of Aden on Global Trade
Armed robbery, hijacking and piracy across the globe have devastating impact on environmental and global economy, safety of navigation and human life. Piracy has been there for ages and according to experts, world trade is highly dependent on international shipping. The Gulf of Aden is a major shipping route and piracy has had an adverse effect on the route.
Threats of pirates in the region can easily cripple international shipping if urgent measures are not taken to manage the situation. What’s more, insurance rates have skyrocketed in the recent past because of piracy.
Due to piracy, more than 80percent of international maritime trade has been affected. Trade moving through the Gulf of Aden is with Europe. Therefore, the economy of Europe has also been affected by direct piracy attacks.
Piracy in the Gulf of Aden also poses significant challenges to the government. It is imperative to note that when ships are hijacked, governments as well as maritime are forced to take important steps to protect themselves from possible attacks. Governments may increase
- Military presence in high risk areas
- Pay high insurance premiums
- Hire private security guards
- Reroute ships that pass across the Gulf of Aden and
- Install non-lethal deterrent equipment
- Governments feel the costs of these actions and they are later passed across to a consumer or a taxpayer.
The carrier also has two courses of action against piracy within the Gulf of Aden. They include accepting the risk of ships that operate through the Gulf of Aden or rerouting vessels via the Cape of Good Hope. By accepting the risk of ships operating within the region, the government also has to enhance security of the vessel.
Rerouting on the other hand is an ideal option for low cost or low value cargoes such as commodities. However, for high value cargoes or products that need instant manufacturing, an added delay may not be acceptable especially to the shipper.
For instance, an additional 2700 miles to a ships voyage is needed if a tanker has to be rerouted from to the United States from Saudi Arabia via the Cape of Good Hope. This simply means a ship has to cover a longer distance and it increases its annual operating costs.
Additionally, it reduces its delivery capacity and in the long run, additional costs of fuel. It is approximated that there is an additional $3.5million annually and this is also passed to consumers.
Due to piracy, shipping companies have been forced to pay high insurance premiums. This includes injury, ransom coverage and liability. The cost of war risk for instance 20,000 thousand ships that pass through the Gulf of Aden could reach $400 million a year.
Added security costs also have an adverse effect on the economy. This is because the price tag that comes with enhanced security means taxing the economy.
Similarly, a lot of money is lost because of piracy. Besides monetary loses, loss of human life also occurs because of piracy. Many people are often kidnapped, held hostage and some are killed by Somali pirates in the Gulf of Aden.
Piracy has also led to acts of terrorism in the region and in the neighboring countries.
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Online sources:
http://www.marad.dot.gov/documents/Economic_Impact_of_Piracy_2010.pdf
http://www.ukessays.com/essays/economics/impact-of-somali-piracy-on-international-trade-economics-essay.php