North Korean Economy Watch

*  win with assistance from the US Navy.

In October 2007 the US Navy assisted some North Korean merchants in their victory over Somali pirates.  In a grudge match this week, however, the North Koreans succumbed to the new Somali pirate team.  The score is now 1-1.

According to the BBC:

A chemical tanker with a crew of 28 North Koreans has been hijacked by pirates in waters off Somalia, the EU’s naval force (Navfor) says.

The MV Theresa VIII, a Singaporean-operated tanker, was taken on Monday in the south Somali Basin, 180 nautical miles north-west of the Seychelles.

It had been heading for Mombasa, Kenya, but was diverted north, Navfor said.

The MV Theresa VIII, the owner of which is based in the Virgin Islands, is a tanker of 22,294 deadweight tonnes, said Navfor, the EU naval force operating in the region to protect shipping.

Some thoughts:

1. Globalization in action: The ship is owned by someone in the Virgin Islands, managed by a Singaporean company, operated by a North Korean crew, and taken hostage by Somali pirates.

2. As sad as it sounds, hiring North Korean crews might be an effective anti-piracy strategy.  Here is why: Pirates hold (a) the ship, (b) the cargo, and (c) the crew as hostages to be traded for ransom. Using simple expected value calculations, this means that the rational pirate will pillage if:  [P(probability of success)] x [$(a+b+c)] > the next best opportunity to earn income.  This ignores risk tolerance, but you get the idea. If you lower the $ value of the payload by hiring workers who will not earn a ransom, then the expected value of the captured ship falls and fewer pirates will attack.  If this plays out in a way that the Somalis lose money on North Korean crews (because who is going to pay their ransom), we should expect to see more shipping companies hiring North Korean crews and painting North Korean flags on their vessels! Old ships + North Korean crew + agricultural goods = waste of time for pirates.

This entry was posted on Tuesday, November 17th, 2009 at 8:41 pm and is filed under International trade, Sea shipping, Singapore. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.