Economic Impact of Piracy in the Gulf of Aden on Global Trade

Over 80 percent of international maritime trade moving through the Gulf of Aden is with Europe. Although 

those economies are currently more directly affected by the attacks, piracy poses significant burdens on 

governments and the maritime industry as they take steps to protect themselves from being attacked or 

hijacked. These actions may include a larger military presence in high-risk areas, rerouting ships to bypass 

the Gulf of Aden, paying higher insurance premiums, hiring private security guards, and installing non-lethal 

deterrent equipment. Ultimately, the costs of these actions are passed along to the tax payer and the 

consumer. 

The carrier has basically two courses of action against piracy in the Gulf of Aden: Avoiding the area by 

rerouting vessels via the Cape of Good Hope, or accepting the risk of operating ships through the area by 

enhancing vessel security. Rerouting may be a viable option for lower value cargoes, such as some bulk 

commodities. However, for high value consumer goods or items needed for just-in-time manufacturing, the 

added delay may be unacceptable to the shipper. 

For example, routing a tanker from Saudi Arabia to the United States via the Cape of Good Hope adds 

approximately 2,700 miles to the voyage. This longer distance will increase the annual operating cost of the 

vessel by reducing the delivery capacity for the ship from about six round-trip voyages to five voyages, or a 

drop of about 26 percent. The additional fuel cost of traveling via the Cape of Good Hope is about $3.5 

million annually. 

The cost of avoiding risk becomes more complex in the liner trades. A long route change would result in the 

need for an additional vessel in order to maintain the scheduled service and capacity commitments of the 

liner operation. For example, a routing from Europe to the Far East via the Cape of Good Hope, rather than 

through the Suez Canal, would incur an estimated additional $89 million annually, which includes $74.4 

million in fuel and $14.6 million in charter expenses. In addition, the rerouting would increase transit times 

by about 5.7 days per ship. This would result in the need for an additional vessel to maintain the service 

frequency. However, these costs do not consider the disruption in the logistics chains. 

The cost of the war risk binder for ships transiting the Gulf of Aden is estimated at $20,000 per ship per 

voyage, excluding injury, liability, and ransom coverage. A year ago, the cost of the additional insurance 

premium was only $500.1

 It is estimated that the increased cost of war risk insurance premiums for the 

20,000 ships passing through the Gulf of Aden could reach as much as $400 million.2 Clearly, this estimate 

represents an upper bound on the additional insurance cost as not all vessels will seek the additional 

coverage, and the estimate excludes rebates given when no claim is exercised on the policy. 

The following table summarizes the major cost differences between avoiding risk via a Cape of Good Hope 

routing, and incurring the risk through enhanced protective measures: 

 

1 "The Long Way Around," Lloyd's List, November 26, 2008. 2 "Piracy Could Add $400m to Owners’ Insurance Cover Costs," Lloyd's List, November 21, 2008.
Additional Cost Estimates Summary

Category Via Suez Via Good Hope 

War Risk Insurance $20,000 NA 

Suez Canal Toll $200,000 NA 

Crew Cost (while in Maritime Security Patrol Area only) 2x basic rate NA 

5,000 TEU Containership Charter Hire (per day) 0 $40,000 

5,000 TEU Containership Fuel (per day) 0 $125,000 

300,000 DWT VLCC Charter Hire (per day) 0 $48,000 

300,000 DWT VLCC Fuel (per day) 0 $47,500 

Licensed Security Guard for voyage through the Gulf of Aden $60,000 

Sonic deterrent equipment and operators (per trip) $20,000 to $30,000