This video is sponsored by Skillshare. The first 500 people to use the link in the
description get their first two months free. This is the TI Europe, one of the four largest
ships in the world. And here’s a banana for scale. At 380 meters long, or twelve hundred feet,
it’s 41% longer than the Titanic, but still shorter than Titanic. In this business, efficiency is everything
and every dollar counts. A ship made with twice the steel has much
more than twice the capacity, with roughly the same size crew. Bigger boats, therefore, cost only a little
bit more and yet make a lot more money. So, here we are, with supertankers that can
hold three million barrels of oil. Which, at today’s going price, makes the
TI Europe a $174 million target for pirates. Last year, an attack was reported every other
day, in some of the busiest, most well-patrolled routes, like the Gulf of Aden, the Singapore
Straight, and the coast of Malaysia. But these are not parrot-wearing, sword-carrying
outlaws. Today’s pirates operate a carefully-planned,
well-executed business – with investors, a stock market, chain of command, and experienced
negotiators. All without the help of LinkedIn. Every part of an attack is a fascinating lesson
in economics. And with profit margins of over 30%, even
Apple should be jealous. Somalia is, by almost every metric, one of
the hardest places to live on Earth. Its now three-decade long civil war has not
only led to drought and famine, but also left the country without a unified, central government. To the north are the independent but unrecognized
states of Somaliland and Puntland. In the south, control is split between the
federal government based in the capital, Mogadishu, and large, terrorist factions. This makes building infrastructure like schools
and hospitals extremely difficult. Which, in turn, makes building a formal economy,
nearly impossible. The result is a 55-year life expectancy, one
of the lowest in the world, and a GDP that makes Ghana and Madagascar look rich. While next-door Ethiopia makes money growing
coffee, potatoes, and cereals, Somalia is not so lucky. Only 1.8% of its land is arable, compared
to half of India, or 34% of Germany. Its two climates are hot and really hot. But, it does have one thing going for it:
the longest coastline of any country in Africa. Fishing should be a huge source of income. But, you guessed it, there’s a catch. Foreign companies noticed the country seemed
a little… preoccupied at the moment and probably wouldn’t notice if they dumped
toxic waste in its waters, killing thousands of fish in the process. Those that survived are now caught illegally
by foreign fishermen, who steal $300 million worth every year, leaving Somalia with only
a small share of its own tuna. So, just to recap: Somalis are given little
education, face a constant threat of violence, have nearly zero healthcare, and a per capita
GDP of… keep scrolling… $104, or twenty-eight cents, per person, per
day. The average ransom, on the other hand, is
2.7 million, so piracy is not exactly a tough sell. It all begins by identifying a target. The ideal victim comes from a rich country,
is traveling slowly, and near the coast. Or, in the case of luxury cruise ship Star
Breeze which was attacked in 2005, all three. The next step is financing. A single attack may cost $30,000 up-front,
which is already a lot, but especially in Somalia. So the risk is usually spread between 3-5
investors who buy shares in an informal stock market. Now comes the attack. With one, large mother ship, anywhere between
4 and 20 pirates follow their target up to 800 miles off the coast. Once they get close, they switch to one or
two small chaser boats, and use rope and ladders to board the ship. Of course, the crew is trying to speed up,
or change directions, and fight back, but they also know they’re no match for the
AK-47s, rocket launchers, and desperation of the pirates. The crew is gathered together, and their communications
destroyed, making the ship go dark. The next step depends on their business model. In areas like South East Asia, the goal is
often stealing oil, selling it to anyone smart enough not to ask why it’s so cheap. But here, in Somalia, pirates rarely touch
the cargo. The crew is, by far, the most valuable thing
on board. They steer the ship to a nearby port, where
the most tense part of the operation begins. With only one buyer and one seller, almost
none of the rules of a normal negotiation apply. Neither party has all the information and
both have great incentive to lie. The owner of the ship wants to appear poor,
driving down the ransom. The pirates, meanwhile, need to seem rash
enough to deliver on their threats and yet patient enough to wait for a deal. Because, the clock is ticking. As time goes on, the value of the ship and
its cargo goes down, and the average ransom generally goes up. Talks, therefore, can last three, four, five
hundred days, all spoken through a translator, often with several different negotiators. If the owner has Kidnapping & Ransom Insurance,
negotiations are made by a professional, who reduces the chance of death from 9% to just
two. But companies aren’t allowed to say they
have insurance. In fact, many corporate travelers don’t
know they have K&R insurance. If they did, it would be invalidated. Because of the incentives, an agreement is
almost always reached. Pirates bring the crew up to the top deck,
confirming their safety. And then, a helicopter flies overhead and
drops a waterproof container full of cash. Finally, comes a pirate’s favorite job:
accounting. First, investors get their guaranteed cut
of at least 30%, The port, who looked the other way while they
parked the ship, gets 5-10%. And the rest is split between the attackers,
with a bonus of around $10,000 for being first to board the ship. This scenario plays out hundreds of times
a year, and costs shipping companies a total of 4.9 to $8.3 billion a year – including
security and insurance. Even just speeding up from 13 to 18 knots
costs an extra $88,000 in fuel, per ship, per day. And those costs are passed on to you and me. We all pay a hidden “piracy tax”. So, what can be done? The obvious answer is fighting back. NATO’s Operation Ocean Shield greatly reduced
attacks from 2009 to 16 by patrolling dangerous waters. And any shippers now hire private security
companies to fill that role. But this creates a free rider problem, other
companies and countries benefit from that security without paying for it themselves. Likewise, everyone would be better off if
no one paid ransoms, but it’s always in each company’s best interest to pay them. All of these solutions reduce piracy, but
none of them solve it. For 30 – $75,000 per attack, there will always
be someone willing to take that risk, no matter how high it becomes. The only real solution is economic, giving
pirates alternative ways to make money. Rebuilding a country like Somalia is a major
undertaking, but giving locals new skills and new opportunities really is the long-term
solution. And, that reminds me of a certain sponsor
of today’s video, you guessed it, Skillshare! What a coincidence! My new favorite Skillshare class is YouTuber
Thomas Frank’s tips on how to be more productive. He does a really good job of going into detail
and focusing on how you can apply different apps and techniques to the specific way you
work or study. If, like me, you’re interested in business
and economics, you should take a class like “How the Stock Market Works”, by YouTuber
Business Casual. It’s no secret that YouTube comments kinda
get lost in the void. But with Skillshare, you can directly ask
questions and get help from the instructor. So, whatever you’re interested in – art,
photography, app development, animation, hey, that’s my class, go try Skillshare for free
for two whole months by using the link in the description.

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100 thoughts on “How Somalia’s Pirates Make Money”

  1. Solution: No more negotiation. Storm every ship with commandos. Kill all pirates on board with no surrenders allowed. You’ll have some deaths for a period of time. However, when the pirates see there’s ZERO chance of a ransom or even staying alive, and the problem will be solved once and for all.

  2. 4.9-8.3 Billion a year?! Damn, we need to bring back Q-ships! How much can arming merchant ships with a few cannons and missile launchers hidden behind false hull plating cost?

    Booby trap enough ships to make the pirates super paranoid

  3. why is $30,000 more lucrative than $174 million (it doesn't seem like the people are that expensive, compared to stealing the cargo) and then how does that cost $8.3 billion a year. the numbers seem a little confusing to me.

  4. To be fair, it’s big companies getting robbed by dirt poor Africans desperate to afford their basic human rights. I feel bad for the pirates. Wouldn’t it be better to help the Somalia situation?

  5. So people this insurance … you are not supposed to say you have it . What if they kill you cause you have no value to them… rule no 4008.

  6. Why don't the ships carry military weapons with them, just start firing as soon as they see pirates, go full Rambo…..

  7. what can be done? we can cut the nuts off every black man on the planet and they're culture will cease to exist. We do it with dogs every day. We call it selective breeding. I personally believe all dogs collectively on average offer greater utility to mankind than that of the average black man.

  8. Imagine a pirate asking the investors if they are interested by any chance in kidnapping and ransome insurance? Like a store employee

  9. As with most (all) African countries, Somalia’s economic state is largely due to the colonial powers which robbed the country of any natural resources, made false promises and began political turmoil and corruption. Europe and the US stole from Africa and have no intention of reparations or significant aid. I see no problem with these guys trying to get some money back to their country – really ridiculous to put the blame on them

  10. More propaganda. Strange that Somalia is one of the countries in the 7 countries in 5 years memo that Gen. Wesley Clarke referenced. Then all of sudden there was all of this turmoil in Somalia. Western Imperialism fingerprints all over this.

  11. European start fishing in somlai area
    .or we can say they start stealing their food….the main reason behind why somali 's became violent…..but still were not pirates….they become pirates thanks to western war lords who gave them free big weapons and made money on their poor shoulders……. Check the origin of cause of piracy in somali…..u will find clear picture of western greed behind this

  12. The solution is always to teach africans how to economically take care of themselves without being crooked. Even when born in the US…an economic machine they're still poor and struggling.

  13. I can't even take your fake-ass stats seriously because you won't even mention how China goes in there and fishes out the whole sea so they end up starving over there

  14. These Pirates didn't surface until China started fishing out the whole sea China should be held accountable I should be paying reparations

  15. Mounted .50 cals are a good deterrent.

    Or, and I think it's the better long term solution, we should drop several nuclear bombs onto the most populated areas of Somalia.

  16. fucking skillshare and squarespace all youtube videos are the same now. youtubers doing adverts as part of their content. i always just skip them the second i hear a sk or a sq i skip.

  17. harsh geographical, harsh weather, and a bonus " help " from outsider dump toxic steal fish……….. and now people complaint about hidden piracy tax :v

  18. How Somali pirate make money?

    They basically climb on board a ship and goes, "Look at me, I'm the captain now. "

  19. My only question is where does the pirate spend that kind of money. I mean if you look at piracy as somolias GDP then it's definitely not at the bottom.

  20. Just arm the tankers with 50. Machine guns.
    Like 8 on each side.
    Then have a defence team of around 16 men defend the ship.
    Done. Pirates get close? 8 heavy machine guns rip trough their shitty boats and pirate crews.

  21. How somali pirates make Money? They dont. They get blasted in to oblivion by armed personal protecting these tankers, trained Soldiers from russia, usa, and stuff

  22. People should not be pirates. Period. Give them jobs? Lol. Those pirate investors should invest in other Somali enterprises and anyone pirating or finding piracy should be dealt with swiftly and efficiently.

  23. USA Should change from "War and Conquer" to "Peace and Conquer". We want money and power. So strike a deal here and there around the world with our troops in your country u get peace and stability we get influence, land, business, and natural resources and % of GDP forever.

  24. Search 1444 don’t do it if your under 13 report it if you want it scared me I’m not sure if the person who owns the account it normal it’s unbelievable that it it still on the app if you are very sensitive don’t watch it you won’t be able to sleep

  25. They've been doing this for centuries. African muslim piracy is the reason why the United States created the navy.

  26. This video is sponsored by Somalian Pirates – check out their website and enter the promo code: NODEATH to receive your first raiding on the high seas death free

  27. Imagine if Liberia and Somalia were next to each other… General Butt Naked and Captain Jack Your Shit would rule the ocean

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