Leverage the Economy of Violence to Build a Somali Coast Guard

In 2008 the United Nations tracked 180 reported incidents of piracy off Somalia. This breaks down to 65 suspicious approaches, 69 attempted hijackings, and 46 successful hijackings, a success rate of 40%. Through April 15th, 2009 pirates have attacked around 80 ships and have hijacked 19 of them, with a success rate of 20%. There are currently 17 ships with over 300 mariners being held hostage off the coast of Somalia.

With a second attack in a week against an US-flagged vessel, and hijackings occurring in the region at an astonishing rate, it is unlikely this is issue is going to go away quietly. The big question on everyone's mind seems to be, what can we do? Well, we have a lot of options actually, the question is what should we do. Piracy is a problem, but has not risen to the level of a strategic or economic threat yet.

If I was working this problem, this would be how I approach it.

Buy Time

If I was President Obama, I would tell the press that one thing holding up action on piracy is the confirmation of Ray Mabus and Bob Work, thus shift the attention to the Senate. I know it makes no difference, but piracy is a complex problem, and right now time is on the side of the United States. Anyone who has read this blog for several months has noted how limited action by the US Navy has paid huge benefits towards the goals of the United States regarding piracy. The problem continues to create pressures in Europe, and every increase in insurance premiums will hit the consumer in Europe harder both on the shelf and in terms of energy imports from the Middle East. If you are an American who doesn't want a war in Somalia, you want the Europeans to continue to get screwed by pirates until they get fed up. Nothing builds mutual support than when their political needs meet up with our political capacity. I think Obama would be quite smart to let the pressure build on Europe, so they come to us looking for a solution.

I noticed Mullen has called for an evaluation of strategy, which is exactly right. ADM Mullen knows this is going down on his watch, and he is going to be engaged. I was not a fan of ADM Mullen the CNO, but ADM Mullen the CJCS has been excellent. For the first time since the late 80s, the Navy SWO is being asked to come up with new ideas that are cheap. I bet they rise to the occation. May I recommend reviewing the lessons of Wimbrown VII and Hercules as a way to deal with small boats, and talking to some old vets how they dealt with this low level crap at sea. The extra insights may come in handy in framing the mind for the challenge. There are several tacticl options the Navy can look at, beginning with spending more time focusing on US flagged ships and coordinating convoys to buy time for the President.

The Economy of Violence

The last economic impact study I saw regarding piracy costs influencing the United States said it was something like 1 cent for every 6 gallons of gasoline. We can certainly manage the 2 cents per fill up. The real costs are being passed on to consumers in Europe, which puts pressure on their governments for more action and a more engaged policy. Mariner Unions in Asia are very powerful blocks in nations like India and the Philippines, and since we have spent considerable resources building the capability of the Philippines, this may come in handy. As EagleOne noted, the connection between Somali piracy and the Philippines is not trivial.

Piracy is not expensive in the grand scheme of things (PDF), for example, the 2,700 extra miles around the Horn of Africa can increase the cost of operating a 300,000 DWT tanker or a 5000 TEU container ship around $3.5 million annually, primarily because it decreases the number of annual trips those ships can make from 6 to 5, and increases the fuel and labor costs of the ship. The thing is, a 300,000 ton DWT delivers half a billion in oil annually, and a 5000 TEU container ship is also big time money in shipping. $3.5 million is just slightly more than a rounding error in the operation of these vessels. Besides, these costs get passed on to the European consumer, so this condition only helps US strategy in getting Europe to take a more active role.

Maritime traffic is already down considerably due to the global economy, which is why it has actually helped the maritime industry for ships to take the long trip around Africa. Fewer trips per ship means more ships get a charter, thus more work for the industry.

Ransoms are still being paid, with a Greek cargo ship released in the past week reportedly earning the pirates over $1 million. The average Somali earns $600 annually, while the pirate who hijacks ships is paid around $10 a day by these pirate cartels, plus any cash they may steal while looting a ships crew. There are plenty of operational costs, including fuel for the boats used to hijack and rent to fisherman to tow them out to sea (act as a mothership), but often pirates will steal a fishing vessel from another country (the two Egyptian fishing ships hijacked this week for example) and will use them as motherships, so these costs are not considerable. Ultimately, between equipment, maintenance, and payroll for hundreds of folks the total cost of an operation is probably often less than 50% of the earnings, meaning lots of profit to go around for a million dollar ransom payment.

Latest news reports are suggesting War Risk Insurance premiums for Somalia may rise to $30000 per day for ships, and with the attacks shifting east of Somalia and further offshore in that area, it is only a matter of time before that area gets declared a war risk zone. Maritime traffic in the region is down due to the global economy. The transit through the war zone area in the Gulf of Aden is usually 1 day, while the transit through a war zone area in the Indian Ocean east of Somalia, if it happens, will be around 2.5 days. For 20,000 ships in the Gulf of Aden, that adds up to around $600 million in war insurance annually at the very high end, not including rebates given when no claim is exercised on the policy, or the reality that not every ship actually buys war risk insurance. The actual figure is probably between $300 - $400 million annually. Should war risk insurance be required in the Indian Ocean region, it will influence fewer ships, but the costs will be 2.5x higher. That decision could push total war risk insurance for the region to approach $1 billion for 2009.

US ships have not seen an increase in insurance premiums while transiting the area as of February 2009 according to CRS, but the primary reason given by CRS is because no American ships have had cargo's stolen or had damage. It is unclear how the recent incidents may influence insurance rates on American flagged vessels. For understanding more about maritime insurance costs, I encourage reading that CRS report, it is useful. It also reviews options for the US government to take a more active role in insurance, which could be helpful in developing revenue models to pay for security in that region.

Yes, I think instead of security contractors, we should seriously consider our options regarding insurance premiums, potentially even renting out the US Marine Corps as a war risk insurance premium policy to safeguard our insurance investments. I highly doubt a squad of Marines are going to be disappointed they may have to blow a Somali pirate to hell so Uncle Sam can earn a few bucks towards a regional security solution.

With insurance premiums a cost effective means of protecting shipping companies from piracy, and the ransoms paid by the insurance companies feeding the cycle of violence, I think the US should consider injecting themselves into the economy of violence to get it working towards the goals of regional maritime security. Is there any way to encourage global shipping companies to pay war risk insurance to the US, who would underwrite the war risk insurance as a means of developing an income model towards regional security, and insure the policy with a squad of Marines through the war zone? Simply put LPDs at an entry and exit point, and we don't need to escort each ship, the Marine squads can provide on the spot security.

There seems to be a lot of money floating around the insurance costs here, money that if it could be obtained by the US, could be used to procure the necessary equipment and fund the training for a Somali Coast Guard.

Somali Coast Guard

I see three maritime problems off the coast of Somalia: illegal fishing, illegal dumping, and lack of security. These are three problems that every professional Coast Guard in the world can fix off their nations coast, so instead of doing a nation building exercise on land, why not look at Somalia in the context of developing a national maritime security capability at sea. There are all kinds of ways to help the emerging Somali government without western military power on land, but there are very few options regarding standing up a professional Somali Coast Guard without foreign military assistance. This is where Europe and the Philippines can add capability for training to share the manpower costs that will be required in the development of skills necessary to meet the challenges of the Somalia maritime domain.

I look at this as a "Sons of Somalia" model in the spirit of "Sons of Iraq" except with direct training and military equipment assistance, plus a long term cooperation commitment. If the Somali Coast Guard is paid a wage of $10 - $20 dollars a day, plus using better equipment that interfaces with the modern technology of international naval forces, that job becomes appealing for the Somali kid looking for a way ahead. It would also keep costs low.

A 2000 man Somali Coast Guard earning $10 a day, and a 400 man officer corps making $20 a day (officer pay would scale from say $12 up to $15 a day), the estimated high number for manpower costs would be $10.2 million annually. If we built and supplied 30 M-80s, for example, at $15 million a piece, worked in conjunction with the local security forces to build expertise for say, 5 years, the total equipment cost would be $450 million, but operated in conjunction with international forces for 5 years we would actually be looking at $90 million annually in procurement amortized over the 5 years, plus one would figure $1 million per vessel maintenance annually, so $120 million annually.

That comes in at a cost of around $130.2 million annually to build a 30 modern vessel Coast Guard with 2000 Somali Coasties and 400 officers.

The way I see it, that is around what the total number of ransom payments could be in 2009 given the current rate of piracy, and well below even the lowest estimates the war risk insurance premiums are costing the industry. The goal would be to find $250 million annually for developing a Somali Coast Guard with a sustained and supported 5 year program, using the rest of the money annually for larger chartered command vessels (motherships) to cover the operational requirements of the M-80s, but also deal with problems like environmental cleanup or forward sea basing. In conjunction with international forces already operating in the region, a long term maritime security capability could be stood up.

Clearly this idea needs a lot of work to flesh out, but this is the general overview of how I would approach building a national maritime security capability for Somalia. It seems to me that $1.25 billion over 5 years could do a lot of good, particularly considering war risk insurance premiums over the same period by the shipping industry would be higher, and potentially much higher if war risk premiums become required off the eastern coast of Somalia for the big ships making the trip around the Cape of Good Hope.