Pirates Have Timesheets

Planet Money podcast #33 included an interesting segment on the economics of modern piracy. The investors typically put up $150 to 250 thousand, earning a 30% or more return in less than a year. Beats the average performance of the best venture capital pools. The operation is similar to running a cruise liner, but without the entertainment:

— Even pirates need a business plan. J. Peter Pham, an analyst of African affairs at the James Madison University, looks at the economics of guns, captains, and $2 million dropped into the sea in waterproof containers. Plus, Per Gullestrup, CEO of Danish shipping company Clipper Group, has dealt with pirates first-hand — he says they’re tough negotiators.

Download the podcast; or subscribe.

Read more about the economics of piracy from Peter Leeson, an economist at George Mason University on npr.org

[From Hear: Pirates Have Timesheets]

The next day, NPR had this followup story:

Yesterday we heard from Per Gullestrup, a shipowner, who had a ship hijacked last November. When he ironed out the ransom details with the pirates, he had 3 demands:

1. The pirates showed “proof of life” (that the crew was still alive)
2. That they could drop the money from the air (faster than getting it there in a tug)
3. That the pirates fill up the ship with fuel.

Looks like the Stolt Strength, a Philippine tanker that was just released 5 months after pirates seized the ship, is probably wishing it demanded number 3 too. Dr. J Peter Pham just sent me a note saying it is dead in the water.

He writes:

It’s turning into a tragic comedy…I received word a couple of hours ago that the Stolt Strength, the phosphoric acid-carrying tanker that was let go two days ago was dead in the water 60 nautical miles off Somalia. They had consumed all their fuel during the five months in captivity. A German naval vessel checked in on it shortly after its release, but did nothing other than give the poor Filipinos enough food for three days. The owners are scrambling to get fuel up on a tug boat from Mombasa, but the crew is in a panic (I spoke with the master via satellite phone), fearing another pirate attack (except for the lack of fuel, the boat is an inviting target since its owners were willing to pay $2 million for its release). The problem with getting a tug boat up there is that the tug itself would be a target since the minimum distance from shore in international advisories is 200 nm. On the other hand, if someone doesn’t get the Stolt Strength out of there and its drifts so far as to run aground, it will be an environmental disaster.

[From Stranded Near Somalia]