Patrick Calma

When envisioning modern piracy havens, the Red Sea often comes to mind, fueled by the infamous Somali pirates depicted in “Captain Phillips” and, more recently, the Houthis’ pirate-like activities. Yet, there is another, lesser-known region that poses a threat to the global supply chain and shipping industry—the Straits of Malacca in South-East Asia. 

To understand the scale of the pirate attacks we must first understand the importance of the region. It shares the same economic importance that can be seen in The Red Sea. It has been in continuous use since antiquity from Roman, Chinese, Indian, and Dutch traders harnessing the natural canal. Today, a third of all worldwide trade traverses through the straits. This accounts for $3.5 trillion of US global trade, two-thirds of China’s maritime trade volume, and 40% of Japan’s maritime trade. By 2030, shipping traffic is expected to exceed the strait’s capacity. Any prolonged disruption can have a big effect. The gadgets we use have their components manufactured in East Asia so long-term disruptions might result in shortages in the West which would not just impact tech companies but also consumers eager to set their hands on the latest gadgets. Moreover, despite East Asian countries relying more heavily on the straits for their energy needs than the West, global oil prices are intricately linked. Any disruption would cause fluctuations in global oil prices. 

There are various factors that allowed piracy to flourish in the straits in the first place. It was culturally accepted with the tradition of piracy dating back centuries. The favourable geography allowed for low-risk detection as the straits forced commercial ships to be closer to the coastlines. The law enforcement was underfunded, and some even collaborated with the pirates due to poor wages. This all changed in 2004 when a multinational approach was pursued with Singapore, Indonesia, Thailand, and Malaysia cooperating to curb piracy. It was effective as from 2015 to 2018, there was a 92% drop. However, it may be on the rise again with sources differing in statistics. The ReCAAP ISC reported 41 incidents between January and June while the International Maritime Bureau released its annual report that highlighted that the straits have become an area of concern with a reported 37 incidents in the entirety of 2023. Nevertheless, it is a worsening trend with other reports revealing that the attacks are getting more violent.

Diverting shipping is one countermeasure. But it would extend voyages by an estimated 4,600km & spiking expenses by 20%. Indeed, with the current events unfolding in the Red Sea, the journey around The Cape of Good Hope adds a further 26 days. This can be further exacerbated by the International Maritime Organisation’s recommendation to have ships speed up through danger zones as pirates normally target easier slow-moving ships. However, it would remain expensive, for instance, it would cost a super-tanker $88,000 per day in added fuel consumption if it increases its speed from 15mph to 20mph. Vessel owners are usually commercially minded, if the cost of rerouting is high, they are unlikely to do it. Additionally, shipping companies are forced to install CCTV and other preventive measures on board their vessels especially since the pirates in the straits are reported to be using advanced technology such as radars and global positioning systems to gain information and allow them to target larger vessels. 

Regardless, cost-effective alternatives are unavailable. Insurance companies encounter key challenges in piracy zones, encompassing cargo, hull, ransom, and war risk.The latter is intriguing as during the peak of the piracy dilemma in the early 2000s, the straits were labelled as an area of war risk by insurance underwriters at Lloyd’s of London. It led to an increase in insurance premiums and shipping companies were forced to pay this enhanced risk. They were expensive with the average premium increasing from $500 to $150,000. In some instances, shipping companies tend to cover the losses out of their own pocket instead of reporting the incident as it could result in their insurance premiums increasing as well as facing long delays due to government investigations. Shipping companies will also be faced with the prospect of paying ransoms. During the height of the crisis, more than $1 million in ransom was paid in 2005. If the trend continues, we may see a repeat of this fiasco. 

Regional nations must sustain collaboration to curb the escalating piracy trend in the straits and prevent further exacerbation of the situation. In the bigger picture, both China and the U.S. have been growing their power in the region. Uncontrolled piracy could provide a pretext for major powers to escalate competition in the straits, potentially heightening tensions and leading to more severe consequences. Similarly, this can be seen in the Red Sea with the U.S. and Iran, any threats of a commercial sea passage may increase geopolitical tensions and further shape the global market dynamics.  Imagine the calamity that will be faced if both the Red Sea and the Straits of Malacca have been rendered unviable.