Behind The Business Plan Of Pirates Inc.

By Chana Joffe-Walt Listen Now

All Things Considered, April 30, 2009 · Piracy off the coast of Somalia has become an international problem — and an international business. Navy SEALS rescued an American merchant captain earlier this month after Somali pirates raided the Maersk Alabama as it was making its way around the Horn of Africa to deliver aid.But the issues of criminality and the potential for violence aside, a closer look at the "business model" of piracy reveals that the plan makes economic sense.A piracy operation begins, as with any other start-up business, with venture capital.J. Peter Pham at James Madison University says piracy financiers are usually ethnic Somali businessmen who live outside the country and who typically call a relative in Somalia and suggest they launch a piracy business. The investor will offer $250,000 or more in seed money, while the relative goes shopping."You'll need some speedboats; you'll need some weapons; you also need some intelligence because you can't troll the Indian Ocean, a million square miles, looking for merchant vessels," says Pham, adding that the pirates also need food for the voyage — "a caterer."Yes, a caterer."Think of it as everything you would need to go into the cruise ship business," Pham says. "Everything that you would need to run a cruise ship line, short of the entertainment, you need to run a piracy operation."

Staffing Is Not A Problem

And like a cruise ship line, a piracy operation needs a crew. Somalia is an impoverished and largely lawless country with high unemployment. As a result, there is a huge work force looking for jobs.Once the supplies and employees are ready, the piracy start-up is ready to launch.But, Pham cautions, the pirates must choose their target carefully."Does it have any value? Who is the crew? Do they have any security onboard? Who owns the ship? All of those things have to be factored. This is a business decision, to seize a ship. Westerners command a lot more money than poor Filipinos, whose country and families don't have the money to ransom them," Pham says."A European is going to fetch you a lot more than a Filipino. No one is going to ransom an African. I'm being brutally frank, but it's true," he says.

Finding The Right 'Customer'

If the pirates have made "good" business decisions, they will soon successfully seize a ship — and have "customers" such as Per Gullestrup, CEO of the Clipper Group, a Danish shipping company. One of the company's ships, with its crew of 13, was hijacked last November in the Gulf of Aden.When it happened, Gullestrup called the company's insurer, who wanted Gullestrup to pay a ransom and get the ship back — otherwise, the insurer would be stuck with covering a $15 million ship. Gullestrup's company could have tried to take the ship back by force, but that is usually when hostages get killed...more..http://www.npr.org/templates/story/story.php?storyId=103657301&ft=1&f=1001