As the debate over the state of piracy in the Indian Ocean rages on, experts argue that strapped cashflow is limiting pirate activity but resurgence is possible if certain factors come into play.
C-Level Maritime Risks founder Michael Frodl said that pirates had almost no one lending to them and that they have had to move to cashflow finance. For the past three months, pirate activity in the Indian Ocean has been at an all-time low. In August and September not a single commercial vessel was attacked, while only two fishing dhows were attacked in August and just one last month.
“Very few pirates have any cashflow today. That explains why one gang executed a hostage, a frightening first — they absolutely, positively need to monetise the [bulk carrier] Orna. In the good old days, if an owner refused to pay, you could just wait it out — you’d get your funds for a new mission fronted by a lender, and go out and hijack another prize,” he said.
“Now you need to get the money from the owner for the ship you already have before you can go out and grab that other prize, and so you need to show them you’re deadly serious about getting paid.”
This is deeply concerning for the 188 seafarers who are still held hostage. Mr Frodl also warned that at least two out of the five major pirate groups that have dominated the business in the past couple of years were still in good shape.
He expected some attacks even if there was something in the region of a 60% drop.
Control Risks maritime risk analysis manager Tom Patterson said there had been a 66% decline in the number of attacks this year.
“This has had an impact upon investment and blunted operations. In the south, the Mudug piracy network has felt a lack of success more keenly than Puntland,” he said.
The pirates there have hijacked Orna and the boxship Albedo.
Mr Patterson said these were tantamount to toxic assets.
“They have been hijacked for two years and operational costs have had to be paid — there is little hope of offsetting these with a ransom payout. In Puntland there have been more recent successes of the [bulker] Free Goddess, [crude tanker] Smyrni and [combined chemical and oil tanker] Royal Grace that are likely to draw in ransoms still. In turn this money is likely to be reinvested.”
However, Mr Patterson said the first generation of investors had insulated itself from the decline by diversifying and putting money into anything from hotels to the khat trade.
New pirate start-ups are understandably risky and can collapse after just one failed attempt. Mr Patterson’s gut feeling was that the drop in hijacks and attacks would impact the business model but some pirates might succeed.
Exclusive Analysis head of current intelligence Gary Li said opinion on piracy in the Gulf of Aden was still very much divided.
“On one side there are those that claim it is over and pirates have moved on to other things. However there is another group that has vested interests in saying piracy hasn’t gone anywhere,” he said.
“Since the lull in piracy, a lot of security industry firms have been waging media campaigns claiming shipowners must be careful. We are stuck in the middle ground.”
Mr Li said the dip in pirate activity was bad news for the PMSCs that had built a whole system in the area including floating armouries.
“These comprehensive weapons libraries cost a lot of money to operate,” he said. “PMSCs are feeling the pinch and are worried about people dismissing piracy in Somalia.”
He said information on the ground was patchy at best, but there had been an erosion of pirates’ capability in terms of manpower and cashflow.
“No major ransoms have been paid for a long time. This means that the pirates are stressed and we can see that coming out in their behaviour.
“Pirate action groups don’t have the investors ploughing money into a highly risky venture.”
While the United Arab Emirates pulled its funding from counter-piracy operations in Puntland, the authorities in the area were still committed to continuing this, Mr Li said.
“The naval activity in the area is also not letting up,” he said. “The attempted hijack of fishing vessels as potential motherships in August was thwarted by EU Navfor, which effectively set up traps for the pirates. Naval forces have built up intelligence over the past few years. Previously, protecting the high-risk area was a bit like searching for a needle in a haystack. Now the navies can be far more targeted in their approach. It’s possible to argue that last month’s operations had been so successful that they didn’t need to lift a finger.”
Any further investment in piracy will depend on the likelihood of return. Mr Li believes resurgence in pirate activity could happen if several factors come into play.
One is an influx of new personnel. He said this is possible: “It could be that disgruntled al-Shabaab factions decide to freelance and set up their own PAG.”
The second is a cashflow injection, another option that Mr Li argues is feasible as there are currently four large commercial vessels in the hands of the pirates.
Last, Mr Li said, counter-piracy bodies in Puntland could relinquish whatever little authority they have gained and make a pact with PAGs, meaning that pirates had a freer rein to operate in the area.
However, he added: “We have already left the monsoon period and there has been no major resurgence, therefore activity will stay low for at least one or two months before any major trigger can be reached.”