Somali piracy cost the shipping industry and governments almost $7 billion in 2011, according to an annual report released today by the nonprofit and nongovernmental organization, One Earth Future Foundation (OEF).

Now in its second year, the study is the result of extensive research conducted by OEF with the collaborative participation of multiple different stakeholders, and includes significant contributions made by commentators, experts, and others impacted specifically by Somali piracy.

Specifically, the report states that the estimated cost of Somali piracy totalled between $6.6 and $6.9 billion in 2011, down from the estimated cost of $7 to $12 billion in 2010, of which the shipping industry bore costs of over 80%. Meanwhile governments accounted for the remaining 20% of the expenditures associated with counter-piracy measures.

This year’s report, titled “The Economic Cost of Somali Piracy 2011”, identified nine key economic costs associated with Somali piracy. Here is how it breaks down:

Ransoms: In 2011, 31 ransoms were paid to Somali pirates, totaling around $160 million. The average ransom was approximately $5 million, up from around $4 million in 2010. While 2011 saw a lower success rate for Somali pirates, the increased price of ransoms meant that pirates received greater revenue for fewer hijackings.

Insurance: The two major forms of piracy-related insurance are war risk and kidnap and ransom (K&R). This insurance market has evolved throughout 2011 to reflect continued developments in piracy. The ‘war risk’ region was expanded to include the larger Indian Ocean at the beginning of the year, and many shipping companies have received premium reductions for having private armed security on board ships. The total cost of war risk and K&R insurance was approximately $635 million.

Security Equipment and Guards: A notable trend in 2011 was the rapid escalation in the use of private armed security. The total cost of both security equipment and armed guards in 2011 was between $1.06 and $1.16 billion.

Re-routing: In 2011, some ships opted to avoid the piracy high risk area (HRA) by hugging the western Indian coastline. This report assessed the cost of that re-routing for bulk carriers and tankers, and estimated the cost was around $486 – $680 million in 2011.

Increased speed: To date, no ship has been successfully hijacked that was traveling at 18 knots or faster. Therefore, many ships will ‘speed up’ when transiting the HRA. Since more fuel is burned by ships transiting at faster speeds, these increased speeds are a large added cost. This project finds that the extra costs of increased speeds for containerships alone is around $2.7 billion.

Labor: In 2011, 1,118 seafarers were held hostage, and 24 died. Due to this grave risk, many seafarers are entitled to double compensation when they transit the HRA and/or for the duration they are held hostage by pirates. This study estimates that the total cost of this additional compensation was $195 million.

Prosecutions and Imprisonment: 20 countries have arrested, detained or tried Somali pirate suspects. The total cost of prosecutions and imprisonment was around $16.4 million in 2011.

Military Operations: Over 30 countries contributed military forces, equipment, and vessels to counterpiracy activities in 2011. This report estimates the total cost of administrative and headquarter operations, military vessels, aircraft, and unmanned aerial vehicles to be $1.27 billion in 2011.

Counter-Piracy Organizations: A number of new civil society and multilateral initiatives were launched in 2011 with a mission of reducing piracy, and its impact. This report calculates the total cost of funding and operational budgets for these organizations to be approximately $21.3 million.

Download: The Economic Cost of Somali Piracy 2011 Report