Crime on the high seas: The world’s most pirated waters

SINGAPORE — The Ai Maru steamed alone under night skies on June 14 when a speedboat slipped in from the darkness and overtook the tanker about 30 miles off the coast of Malaysia. At 9:15 p.m., seven men with handguns and knives clambered up over the side, smashed through doors, tied up crew members at gunpoint and bashed the Ai Maru's communications equipment.

The attackers stripped the 13 crew members of their personal belongings, locked them in a room and spent the next hours getting to the real work at hand: stealing the cargo. A second tanker, this one piloted by more pirates, pulled alongside. The maritime robbers siphoned a total of 620 metric tons of marine gas oil from Ai Maru to their own ship.

The world's most dangerous waters
The world's most dangerous waters

At 5 a.m., when naval and coast guard vessels arrived at the Ai Maru, dead in the water with its lights glowing, the pirates were long gone. Their total haul, at black market fuel prices, came in at about $550,000.

Welcome to the world's most dangerous waters, where a whole new style of piracy is rewriting the playbook of maritime crime. The attack on the Ai Maru, which was documented by ReCAAP, a multinational body that combats piracy, and the International Chamber of Commerce's International Maritime Bureau (IMB), is a textbook example of the piracy plaguing the seas of the Singapore Strait and Strait of Malacca—the world's busiest commercial waterway.

Unlike the Somali pirates—who, incidentally, are now almost out of business—the pirates of southern Asia rarely, if ever, seize hostages. They're in the business of stealing cargoes of liquid fuel. And they're often not small-time, ad hoc gangs from coastal villages like the Somali crews. Instead, experts say, they're highly organized criminal enterprises that gather intelligence, coordinate attacks, work in discrete teams, sometimes have their own tankers and then sell what they steal to big, pre-arranged buyers.

"The Horn of Africa is slowing down because the cop is on the beat there," said Richard Phillips, the subject of the Oscar-nominated film "Captain Phillips" and the real-life ex-captain of the Maersk Alabama, which was taken by Somalian pirates in 2009. "But Indonesia is a target-rich environment, with lots of vessels. And there's definitely cooperation from onshore that helps these pirates who are out there."

Why here, why now

From a business standpoint, the boom in south Asian piracy makes a lot of sense. A third of the world's shipping moves through the Strait of Malacca and Singapore Strait each year, including most trade between Europe and China, and nearly all the crude oil that moves from the Persian Gulf to the big Asian economies like China, Japan and South Korea. About 130,000 vessels arrive in Singapore each year alone, according to both Singaporean and international estimates. That breaks down to a ship entering the strait every four minutes. And the global trade that flows through that bottleneck—only 1.7 miles wide at its narrowest point—is growing.

The great majority of those vessels make it to their destination without any problems. The Singapore Strait is in no danger of shutting down. But the number of attacks is on the rise. There were 125 pirate attacks reported in the region in 2013, triple the number from 2009. (Over the same period, attacks off the Horn of Africa shrank from 197 to 13.)

And even those estimates from Asia are conservative. Only a minority of attacks are reported, experts contend, since handing over such information is voluntary, and many shippers don't want their names associated with lost cargoes or a perception of lax security.

But the costs of piracy extend far beyond the actual vessels that are attacked. The U.S. Merchant Marine estimates that global piracy costs shippers $4.9 billion to $8.3 billion a year. Half of the world's attacks now take place in the waters off Indonesia, Singapore and Malaysia.

Those higher costs come in the form of lost cargo, higher insurance, added shipping times, extra compensation to crews, litigation and legal fees. Even cruising faster in an effort to discourage pirates adds costs. (Pirates prefer their targets "low and slow," in the parlance of the shipping trade.) Jon Helmick, a captain with the United States Merchant Marine Academy, overseen by the Maritime Administration at the Department of Transportation, said that cruising at 17.9 knots in a supertanker, versus the typical 12.8 knots, adds an extra $88,000 in fuel expense per ship per day.

Those extra costs inevitably get passed on to consumers in the increasingly interconnected global markets, where losses in one part of the world affect costs in another. And while it's impossible to quantify exactly how much more Americans pay for regular consumer goods as a result of piracy and higher shipping costs, it's worth considering that more than 90 percent of the world's trade is carried by sea, according the United Nations' International Maritime Organization.

Cargo ships sit idle in the Singapore Strait as the sun sets over a hazy Singapore skyline.
Andrew Rowat | The Image Bank | Getty Images

How it works: Pirating in plain sight

Ships pass by and see two vessels together transferring cargo, that's not uncommon at sea. And on radar, it just looks like two little blips. Those could be fishing boats.
Pottengal Mukundan

As the example of the Ai Maru shows, pirates in the Strait of Malacca and Singapore Strait prefer tactics that are very different from the chasing, seizing and kidnapping that were employed in the past by Somali pirates on the Maersk Alabama and hundreds of other targets.

Maritime bandits in south Asia prefer stealth, and they make money by selling what they steal, not by ransoming seafarers. But that doesn't mean that hair-raising confrontations with a high possibility of violence don't occur from time to time.

Capt. David Watkins, a former ship's master who now works as fleet quality assurance manager for Swire Group's China Navigation unit, tells a story of being awakened by a crewmate in the middle of the night who said that nine pirates wielding ropes, grappling hooks and machetes were swarming up over the stern of his crude carrier as it sailed through the strait close enough to see the nighttime lights of Singapore in the distance. His 19-man crew armed itself with crowbars, mustered on deck and got ready for a nasty hand-to-hand fight.

Piracy Business Model
Piracy Business Model

"Nobody went to sleep that night," he said. "No one wants to get into the conflict, I have to admit. Sometimes there's this bravado about attacking pirates. But when push comes to shove, all you want to do is constrain them or subdue them."

Two pirates drowned that night as they tried to escape from the superior numbers of the crew.

Pirates in the Strait of Malacca and Singapore Strait prefer small cargo ships carrying scrap metal, and small tankers transporting liquid fuel or other petroleum products. Those cargoes are difficult to trace on the black market, experts said. At least nine tankers in the straits and east of Singapore in the South China Sea had their liquid cargoes siphoned off between April and August, according to the IMB.

Such heists require precise intelligence—about what a ship is hauling, where it will be at a specific time, the security measures in place and details about the crew. Most pirate operations obtain that information from a variety of sources, from crooked seafarers or their family members to port workers and even government and military sources, according to several sources who spoke with CNBC, including Nicholas Teo, deputy director at the Information Sharing Centre of ReCAAP.

Organized crime
Organized crime

When Western navies first began combating Somali pirates toward the end of the last decade, they often cited the vast watery expanses of that region one of the main reasons it was so hard to stamp out the perpetrators. So naturally, one may wonder how a choke point running from the Strait of Malacca through the Singapore Strait has become a choice operating region for gangs of thieves on tankers.

Rather than making it harder to operate, experts said, the crowded waterways of the region make it easier for pirates to blend in. It's a regular occurrence for two vessels in the area to lash together alongside one another and transfer fuel or other cargoes, for entirely legitimate, commercial reasons. Standing on the shore at East Coast Park in Singapore last month, a CNBC reporter could see it happening simultaneously in two different places. "Ships pass by and see two vessels together transferring cargo, that's not uncommon at sea. And on radar, it just looks like two little blips. Those could be fishing boats," said the IMB's Pottengal Mukundan.

Crew members standing at the controls on the ship's bridge with a gun to their head are unlikely to sound an alarm, even if a patrol boat passes nearby, experts said. After a cargo transfer or robbery is done, pirates usually destroy victim ships' communications gear and steal crew members' phones. And even if the seafaring thieves are on a big vessel, they can blend in with the hundreds of others in the area before the authorities arrive. If Somali pirates act like muggers, attacking isolated targets out of sight of the authorities, south Asia's pirates act more like pick-pockets, using the crowd itself as cover.

Insider Information
Insider Information

In the waters of the Singapore Strait, there have been at least four attacks this year in broad daylight, said Capt. K.A. Pillai, a former Indian navy officer and bulk carrier master who is now a maritime security consultant and a member of the Singapore Chamber of Maritime Arbitrators. The area is well patrolled by marine police from Singapore, Malaysia and Indonesia, but it's possible to be in the area of an ongoing attack and not be able to recognize that it's happening.

Indonesian navy sailors escort men accused of piracy, after they were arrested for attacking a Singaporean ship in Indonesia's Karimata strait from a navy ship in Jakarta's Tanjung Priok Harbor.

Organized crime

It's definitely organized crime, and they have to have international links. They're taking it ashore. They need a refinery that will turn their head. And those refineries are cutting them deals
Michael McNicholas

The pirates' high level of coordination and business model bear the hallmarks of organized crime, experts from across the industry and government agencies agree. One big tell: A growing number of attacks in the area involve commandeering vessels and stealing whole cargoes, especially liquid fuel, as opposed to simple theft of whatever pirates can find laying around. That means finding a buyer for a particular product in advance, often an international buyer with plenty of capital. Next, pirate groups have to gather intelligence that will let them target a ship containing that specific cargo. Then they have to make big capital expenditures, such acquiring their own tanker that will carry the stolen cargo. Then they need to fence the fuel.

"It's definitely organized crime," said Michael McNicholas, managing director of Phoenix Group, a maritime security firm. "And they have to have international links. They're taking it ashore. They need a refinery that will turn their head. And those refineries are cutting them deals."

Given current market prices for, say, naval fuel, and the quantities that pirates have been able to siphon away in attacks that have been documented, a gang can steal fuel worth upwards of $2 million in one robbery. Certainly, pirates are unlikely to get fair market value, since part of the way they draw buyers is by offering heavily discounted prices. Their huge operating margins make slashing prices easy. But even accounting for discounted pricing, they're engaged in transactions that require them to line up a major buyer ahead of time, said Derek Baldwin, director of Worldwide Operations at IBIS Risk Management Services, which investigates fraud and other crimes for the U.S. government and corporate clients.

"If I know you buy oil, and I have dealt with you before, I call you up and say, 'Can you use 10,000 gallons?' I'm getting it for free, so I can quote you a really good price," Baldwin said.

Small tankers are perfect targets in more ways than one. When they're loaded, their decks are close to the water line and they move slowly, making them easy to board.

Just before midnight on June 17, the Budi Mesra Dua was overcome by a high-speed wooden boat as it steamed slowly with a cargo of diesel oil, according to an account from ReCAAP. Six pirates armed with swords tied down the crew of the Budi Mesra Dua and forced its master and chief officer to sail to a new location close to land. There, a barge with 20 more pirates arrived. They boarded and siphoned off 940 metric tons of diesel onto the barge. They fled at 9 a.m. the next day, leaving the crew unharmed, after smashing the diesel tanker's communication and navigation equipment.

Current liquid fuel prices make their cargoes appealing to organized crime. Marine gas oil can go for $900 a metric ton on the open market. Plus, liquid fuels are hard to track, and pirates sometimes make them even more difficult to trace by moving them through multiple middlemen or by mixing refined products with other grades of fuel. In fact, those mixtures are turning up on the market more and more, said Pottengal Mukundan of the IMB.

That can pose its own danger to vessels far away from the scene of pirate attacks. A growing problem of "contaminated" oils turning up in Southeast Asia means many buyers are unknowingly adding fuel that can damage engines because it doesn't meet the ship's specifications.

A region posing its own problems

Another challenge for governments trying to catch pirates is the sheer number of governments and other groups trying to combat the problem, often with limited collaboration. The region has three major national jurisdictions—Indonesia, Malaysia and Singapore. The geography of the region makes intercepting and tracking down pirates extra difficult. Malaysia is broken into two main parts, one on a peninsula north of Singapore, and the other on a huge island it shares with Indonesia, south of Singapore. And then Indonesia is a vast archipelago in its own right, with 17,000 islands that provide endless villages, grottoes, inlets and other nooks where pirates can hide out.

Assessing Risks
Assessing Risks

Indeed, more governments involved in anti-piracy efforts don't necessarily translate into better enforcement. In the case of the Ai Maru, a distress signal reached the IMB's Piracy Reporting Centre in Kuala Lumpur, Malaysia. Six vessels responded, from the Royal Malaysian Navy, the Malaysian Maritime Enforcement Agency, the Indonesian Navy and the Republic of Singapore Navy. The pirates still got away.

The fix

The key to most avoidance of piracy attacks is vigilance—hardening the ship, and having a very motivated crew with a good attitude toward surveillance, and knowing what to do if you're under threat.
Captain David Watkins

The changing nature of shipping has made piracy easier, not harder, say people in the industry, and that makes fixing the problem all the more challenging. Automation has reduced crew headcounts, making it harder to maintain a vigilant watch on board. A 500,000-ton oil tanker that would have had 35 crew members years ago may have only 15 men today. Some vessels actually put dummies on deck to make it look like crew members are standing watch.

Automation has also made crews less comfortable with taking individual action on the fly when unexpected situations arise, said Lee Wai Pong, executive director at the Singapore Chamber of Maritime Arbitration. As the human role has been reduced in on-board operations, he said, seafarers have become more dependent on their technology and less agile in the face of emergencies.

Risk to life and limb
Risk to life and limb

And there's also the multinational nature of shipping, which is greater today than it's ever been. It's often difficult to decide which nation, exactly, should take the lead on investigating an attack in international waters when the ship is owned by a company in one country, flagged under a second country, captained by someone from yet another country, crewed by men from a fourth country, on its way from a fifth country to deliver cargo to a sixth country for a corporate client in a seventh country. In the jargon of corporate management, it can be difficult to get someone to "take ownership."

In the shorter term, experts told CNBC that shipping companies need to invest more time and money, especially in training crews for handling pirate attacks. Crews, after all, form the first—some would say only—line of defense. Especially in the Strait of Malacca and the Singapore Strait, where targets are plentiful, vigilance is sometimes all that's necessary. The first signs from a targeted ship that it has spotted by would-be pirates—sounding an alarm, turning on spotlights at night or evasive maneuvers—will almost always make pirates break off an attack, security experts said. The reason is simple: Pirates reason that there will always be somebody else nearby who won't put up a struggle, so why go after the ship that sees you coming? "The key to most avoidance of piracy attacks is vigilance—hardening the ship, and having a very motivated crew with a good attitude toward surveillance, and knowing what to do if you're under threat," China Navigation's Watkins said.

In a demonstration to senior officers from the Indonesian and Singapore military and law enforcement agencies, Indonesian Navy Kopaska troops storm the "hijacked" vessel MT Promise off Batam island while it was cordoned by vessels from Republic of Singapore Navy, the Indonesian Navy, the Singapore Police Coast Guard and the Indonesian National Police.
Singapore Press | AP

Shooting back

If enough impoverished areas of the world feel that what the pirates have carried out has been very successful, this will spread.
Captain Watkins

One fix that probably won't help is firearms on merchant ships. Sources who spoke with CNBC were split on the use of guns aboard ships, but a clear majority advised against arming vessels in Asia, including some people who work for security firms. Firearms are illegal on commercial vessels in Singapore, Indonesia and Malaysia.

Armed guards are known to have thwarted seven of the hundreds of attacks that have taken place in Somalia, said the security consultant Pillai, but the region has seen a much larger drop in attacks overall—to 13 last year from 197 in 2009. Experts credit a multinational military effort and merchant crew training for the drop.

Protecting the Vessel
Protecting the Vessel

The sheer number of merchant ships at sea—roughly 55,000—makes it impossible to put professional security teams on all of them. And security teams have sometimes created their own problems: In 2012, a contingent of Italian marines working security aboard a private oil tanker off the coast of India allegedly opened fire on an unarmed fishing boat, killing two Indian fishermen. In February, two former U.S. Navy SEALs working the often dull job of armed security died of heroin overdoses while docked in the Seychelles.

Ironically, they were aboard the Maersk Alabama.

Piracy in the waters off western Indonesia will likely get worse before it gets better, experts say. And this new school of piracy may find copycats—perhaps in other high-traffic shipping areas in Africa, the Middle East, Pacific Islands, the Caribbean or South America. And it may be that fear, more than anything, that keeps some seafarers and shippers up at night.

"If enough impoverished areas of the world feel that what the pirates have carried out has been very successful," said Watkins, "this will spread."

—By CNBC's Ted Kemp. CNBC's Laura Trythall contributed to this report.