Given the life-or-death stakes, the rewards of high seas piracy are hardly impressive. Last year, Somali pirates collected an estimated $18 million to $30 million in ransom payments for captured ships, crew and cargo. That's less than half a percent of the total value of cars stolen in the U.S. last year.
But costs related to passing through the nearby Suez Canal, a crucial transit point for much of the oil and other cargo destined for Europe, have skyrocketed. The price of insuring and securing voyages has more than quadrupled, forcing some companies to spend millions per trip just to avoid the area.
"The economic problem is out of all proportion to the size of the piracy problem," says Peter Townsend, who heads the marine group at insurance broker Aon, which sells policies that protect against losses from pirate attacks.
Piracy off the coast of Somalia was once a relatively small problem. The pirates primarily targeted fisherman and cruise ships in what amounted to petty theft, says Townsend. Over the years, they used the stolen money to buy better ships, rocket-propelled grenades, and additional weapons and ammunition with which to halt bigger ships. Facing little resistance from a Somali government that has remained weak for decades, the pirates have grown bolder in recent years.
More from MSN Money
Piracy attacks increased 11% worldwide last year, according to the International Maritime Bureau's Piracy Reporting Centre. Much of that was due to a spike in piracy off of the Somali coast. In March alone there were 15 attacks on vessels. Somali pirates have nabbed an additional three vessels since the U.S. Navy shot and killed three pirates in Sunday's successful rescue of Maersk Alabama cargo ship Capt. Richard Phillips.
The attacks have begun to stray further into international waters. Pirates now operate in an estimated 1.4 million square miles of open waters off Somalia and Nigeria, another piracy hot spot on Africa's Atlantic Coast. Avoiding attacks can easily add $1.5 million to $2 million in extra fuel, time and labor to the cost of a shipment to Europe, but the cost of navigating such dangerous waters is higher still. Insurance premiums protecting against vessel damage and delays due to piracy have increased five- to tenfold, says Townsend. The cost of hiring a security escort to pass through the Suez Canal is as much as $100,000, depending on a ship's size and the value of its cargo. Additional costs include military patrols in the canal.
All that adds up. Estimating a total annual amount is difficult due, in part, to the reluctance of companies to discuss ransoms paid or money spent on insurance and security related to piracy. The fear is that disclosing such information may embolden pirates to attack ships.
Many of the protective measures have proved ineffective. There are an estimated 600 to 1,000 pirates in the waters off Somalia, says Townsend. Meanwhile, only about 30 ships patrol an area that about 1,400 merchant vessels passed through last month alone.
Delays from piracy cause some of the biggest cost increases. To avoid raising shipping rates during a downturn, some shipping companies have tried wrapping their hulls with razor wire or using several smaller, more nimble boats to transport cargo, because slower vessels are more easily boarded by pirates. Shipping crews are not allowed to be armed, though some carry weapons anyway, says Townsend.
From the nearly 80 pirate attacks carried out this year, pirates continue to hold about 16 vessels, according to the maritime bureau. "It's akin to sitting in a taxi in a traffic jam," says Townsend. "The meter is still ticking and the ship owner is liable for the cost of the vessel and the time she is delayed."