If anything has brought the merchant shipping industry into the light of popular culture over the last two years it's been the pirates of Somalia, who have during that time hijacked 94 vessels, held an estimated 1,800 people hostage, and extracted something close to $200 million in ransom from ship owners around the world. They've attacked virtually every type of sea craft there is -- polished European sailing yachts, dilapidated Vietnamese fishing trawlers, bone-white promenade-deck cruise ships sailing out of Miami, break-bulk stick freighters chugging out of the Port of Singapore, high-riding container ships owned by spruce Scandinavian industrial conglomerates, low-riding dry-bulk carriers, Ro/Ro car carriers and very-large crude carriers -- the VLCC supertankers that weigh more than 300,000 tons fully loaded -- owned by Armani-draped Athens shipping magnates. The pirates are, by and large, fearless. Once, a gang had enough temerity to assail an American supply ship, the Lewis & Clark, then carrying fuel, ammunition and sailors' mail for the warships of the United States Navy. (The attack was thwarted.) So dense is the action that the crew of one ship -- the MV Horizon -- witnessed the hijacking of a second ship, the MV Titan, while both vessels were navigating pirate waters in the Gulf of Aden in March 2009. Four months later, in July, as it steamed through on a return voyage, pirates captured the Horizon. Nearly every major shipping company has experienced a run-in with Somali pirates of one kind or another: DryShips' ( DRYS) Saldanha, carrying coal to Slovenia, was captured in February 2009, released for some millions in ransom that April; Navios Maritime Partners' ( NMM - Get Report) Apollon
The success of Somalia's pirates has given rise to a certain kind of portrayal in the Western media. "Cutthroat Capitalism," reads the title for a piece in Wired. "They've come up with a good business model ... with a low cost of entry," writes the foreign relations expert in The Wall Street Journal. Piracy's "flashy new-money culture" has become "entrenched," declares a dispatch in The Washington Post. A new neighborhood of "huge homes" rises in an otherwise miserable hut-and-shack village in Somalia, reports The New York Times. The neighborhood is called "New Boosaaso" and the "minicastles" there cost "several hundred thousand dollars." An intrepid Reuters' stringer goes into a pirate stronghold -- "stronghold," with its whiff of the medieval, being a favorite word to describe the places where Somali pirates live -- and comes out with the news that there exists a kind of bandit stock exchange; it's possible -- so the story goes -- to buy shares in a gang of pirates. If your company of corsairs returns to shore with a ransom: dividend yield.
The hostage crisis James Christodoulou supervised for 56 days between Thanksgiving 2008 and late January 2009 has transformed him, a year later, into a bankable expert on all things piracy. In the aftermath of the hijacking of his company's ship, the MV Biscaglia
But the full meaning behind this insight would only come in time. Before the hijacking, Christodoulou was more concerned with the fiscal health of his company, Industrial Shipping Enterprise Corp., or ISEC, which he had taken over as CEO in 2007, hired by its seed-capital investors to prepare it for an eventual IPO, at which he had some experience.Though his name might suggest deep nautical genetics, or whitewashed villages climbing the cliffs from a turquoise sea, Christodoulou was born and bred in New Jersey, the son of a printer. (He sometimes looks the part, though. Burly as a stevedore, he seems to prefer heavy woolen turtleneck sweaters. At such times, you wonder where's the corncob pipe.) He came to shipping in the late 1990s while working for a private equity firm that had transacted some business with the company that would become General Maritime ( GMR). He got to know its founder, Peter Georgiopolous, who brought him on as chief financial officer. He helped take it public in 2001. He did the same, a few years later, for OceanFrieght ( OCNF). In between, he worked as a shipping-industry banker for a boutique investment bank called Dahlman Rose. ISEC, however, was a long way from the New York Stock Exchange. It employed five full-time people, Christodoulou included, outsourcing most of its tasks. Annual revenue approached $8 million, and it owned just two ships -- a pair of sibling double-hulled "product tankers," the kind of vessels outfitted to carry anything wet, save for crude oil. Built in 1986, the sisters had aged. Christodoulou's ultimate goal was to renovate and expand ISEC's "fleet," if that term was yet quite applicable, but any IPO dreams had been deferred in the late summer of 2008, with a global financial crisis and recession just then expanding into bloom. In September 2008, when ISEC scored a cargo -- $600,000 to carry 25,000 tons of palm oil from Indonesia to Spain -- Christodoulou's main goal was to get through the rest of the year unscathed. He focused his attentions on the Biscaglia's latest voyage. "DON'T WORRY ABOUT IT"
The fastest way to point B would take about 28 days and would mean a transit through the Gulf of Aden, a.k.a. "Pirate Alley," often abbreviated "GOA" by shipping people, and known in the Somali language as Khaleejka Cadan. Four times the area of Texas, the Gulf of Aden is 200 miles wide and 550 long -- a crocodile's mouth of water formed by the jaws of the Arabian Peninsula coast to the north and the Somali Horn of Africa to the south. It funnels all Mediterranean-bound traffic up the sluice of the Red Sea; in either direction, almost anything that wants to use the Suez Canal -- where ships ride the lochs over the sands of the Sinai -- must therefore traverse the Gulf of Aden.
To that point in 2008, 57 ships had reported to the International Maritime Bureau (a group that monitors high-seas crime for the International Chamber of Commerce) that Somali pirates had attacked them; 38 had been hijacked. Of those, perhaps a dozen were still anchored off the coast of Somalia, engines idle in a kind of pirate-induced doldrums, awaiting ransom deals as their owners negotiated with the pirate bands for their release. Christodoulou took precautions, what he likes to call a "belt-and-suspenders approach." First, ISEC went all-in on insurance, paying up for every sort of policy on the market that promised to guarantee against piracy-induced losses. (Some of it purchased from Hiscox, the huge British underwriter, one of the largest syndicates at Lloyds' of London
According to the International Maritime Bureau's 2008 annual report on world piracy, the attack occurred at about a quarter to eight in the morning, local time. Flashes of hearsay, of details cobbled from secondary sources: Two speed boats carrying 11 or 12 men (no one seems to know for sure, except, probably, the pirates themselves), overtook the MV Biscaglia in the Gulf of Aden. Slow and low, the ship had fallen two hours behind the convoy led by the French naval frigate. The people on the skiffs, most of them apparently teenagers, carried AK-47s and a rocket-propelled grenade launcher -- the de rigueur weaponry of Somalia's pirate squad.
"What was their first number?" "High." "More than ten million?" "Higher." "More than fifty?" "No, no. But it was ridiculous. It was more than the value of the ship. It was like, 'Guys, just take the ship, then.'" A body of common knowledge -- of best practices, helpful contexts, rules of engagement, SOPs -- has evolved over the last few years when it comes to the highly specialized ins and outs of negotiating with Somali pirates. Christodoulou's introduction to this world came over breakfast at Claridge's, in London. ("I always stay at Claridge's when I'm in London.") Two days after that first phone call on Thanksgiving night, he flew there to meet with his insurance representatives and, most importantly, the professional hostage negotiator assigned to him by his kidnap-and-ransom underwriter. K&R insurers keep such specialists on retainer. Reginald Taylor (not his real name) happened to work for one of the more illustrious firms in this secretive business: Risk Management, which once employed the man on whom the Russell Crowe-vehicle Proof of Life was based. The average length of captivity is 60 days. The ships are nearly always taken to points off the coast of known pirate strongholds and anchored there. The pirate gangs -- thought to be run by clans, which are thought to be headed by so-called "boards of elders" -- will assign an English-speaking negotiator to each ship. The negotiators are likely subcontractors or middlemen; they're based for the most part on the beach, not onboard the vessels, so as to avoid cases of Stockholm syndrome; they might be working on several hijacked ships at once. Threats will be made: Running ships aground. Debarking crew members and hustling them into the interior. "It's a long and laborious negotiation," says Dick Hildreth, a kidnap-for-ransom specialist with the firm Corporate Risk International, of Reston, Va. "The negotiators and the pirates will change their minds halfway through. They'll lie."
Because of ISEC's tiny size, Christodoulou pretty much had to serve as his own negotiator. To his counterpart on the other side of the planet, however, he presented himself as "Gus," a fiction, a second personality for Christodoulou to play-act: a company employee deputized on behalf of ISEC's chieftains to work a deal with the pirates.
When James Christodoulou received the phone call ( "area code: Somalia") while driving on the New Jersey Turnpike -- the one in which the caller accused of him of working for the mob and dumping toxic waste into Somali waters -- he was speaking for the first time to Abbas, a new negotiator. Hussein, the one he had spent the last few weeks attempting to disarm, had evidently been fired. Christodoulou wouldn't learn the reason why until much later, until he had a chance to speak to the Biscaglia's crew after the ship's release. Hussein's bosses -- the clan "elders," or whomever headed this particular band -- felt that Hussein had become too soft in his negotiating style, that perhaps he had shown too much sympathy toward this group of Indian captives. Hussein, evidently, had come down with a case of Stockholm Syndrome.
In his hotel room in Bombay that night, Christodoulou spoke to Abbas, the pirate negotiator. He'd brought the football with him to India. Through the entire ordeal, he was never far from Somalia. Reflecting back, Christodoulou describes his relationship with the pirates as a "sick codependency." Both pirate and owner "are held hostage." Everyone involved understands, in other words, that the ship and the cargo are, at bottom, worthless to the Somalis. What could they do with 25,000 tons of palm oil? Two million barrels of oil? A panamax-size load of coking coal? In Christodoulou's words, "It's the crew that's the real thing of value." He says, "The pirates can't go anywhere else, because no one else is going to pay them for what they've got. So they're held captive to me. And I'm held captive to them because I can't say, 'F--- you. I don't want to do this deal,' and walk way. No one can walk away from it. But because no one can walk away from it, it tends to have a 100% resolution rate." Before Christodoulou and his pirates could break their codependency, frightening moments accrued. While he tried to hold pat and not cave by sweetening the ISEC counteroffer, threats, both subtle and unsubtle, began to come down from the stronghold at Garacad. Even Hussein, the relative sweetheart, caused anxiety. The parties sometimes communicated via fax. The pirates used the Biscaglia's machine. A fax emerged on Christodoulou's computer. "Your crew they don't have water maybe they will dye..." "Somali gentlemen they know only how to kill or shooting the people. So please help me to finish this problem..." Signed: Hussein. >>View the actual ransom note here. When Abbas the hardliner took charge, the threats gathered clarity -- the Biscaglia thrust aground onto some deserted Somali beach, the Biscaglia crew marched at gunpoint into the Somali interior -- but still these coercions were subtly couched. They never took the form of: Pay this amount, or else. Abbas would say, in his highly imperfect English, that some of his bosses may have recently discussed the possibility of these drastic measures. It became, in effect, the threat of a threat. Christodoulou would respond in kind: I know you're capable of doing this, he would reply through the football. "But you're businessmen, not murderers. I know we don't want to let our situation get to that." The Americans hunkered in Hoboken understood that Abbas' subtlety was smart. Neither side wanted to force a "face-off," Christodoulou says, "where somebody's gotta blink." (The story of the crisis, in the retelling, has burnished Christodoulou's language at times into noir.) It did not put Christodoulou's mind at ease that Somalia's pirates had yet to run a ship aground, to shoot a sailor to make a point. "In the investment world, they're always saying that past results are not necessarily an indicator of future performance. Well, you never know if you're going be the first guy where they kill a crew, where they run your ship into the ground, where they take your guys into the caves." All through the days, in the background to these conversations between Christodoulou and his pirate liaison, Reginald Taylor, the Englishman (not his real name), whose pre-kidnap-and-ransom career remained mysterious and much-discussed among the Americans in the Hoboken condo-bunker -- Christodoulou suspected Her Majesty's S.S. -- played many crucial roles. Among them was gathering "market intelligence." So busy have the hijackings become off Somalia that -- in 2008 as now -- ships go in and out of captivity almost every week. Ransoms, therefore, are being transacted frequently enough that a going rate for the termination of a hijacking has more or less evolved. The going rate for a ransom depends on a ship's size and age and cargo and number of crew -- just as it would for charter rates, for ship asset values, for maritime insurance, for fees at the gates of the Suez Canal.
By the last week of January, Christodoulou believed a deal was imminent. "I could tell, from pricing conversations, from the tone and pace, that we were getting to closure. It's not: they're saying A and we're saying Z. It was: they're saying M and we're saying L." The number of phone calls between Hoboken and Somalia shot up to as many as 20 per day as the two sides maneuvered. This meant that, at long last, Christodoulou needed to call in a favor. Because kidnap-and-ransom insurance is an indemnity policy, the insurer does not front the capital for the payout, and ISEC, in its tight cash spot, didn't have the money to cover a (roughly) million-dollar ransom. But, Christodoulou says, one of ISEC's biggest investors, a private-equity firm called Regent Private Capital LLC, of Tulsa, Okla., had assured him that finding the ransom money wouldn't be a problem. "We'd always been very confident that having the funds would not be an issue," Christodoulou says. "And that the only thing we had to focus on was safely resolving the negotiations."
But it was, in the end, unnecessary. A simple call to Per Gullestrup in Copenhagen solved the problem. The Clipper Group would advance ISEC the ransom amount. "He didn't even have to think about it," says Christodoulou. "Boom, done." Two days later, through the windows at his riverfront condo, Cristodoulou saw some sort of froth on the Hudson. He was on the football, making final arrangements with Abbas. At the front of the turbulence was an oddly shape watercraft. Sully had just landed his plane. With Clipper's guarantee, ISEC got a loan. With the loan, cash -- 100s, 50s, 20s, 10s, "It's been reported as more than a million; let's leave it at that," is all Christodoulou will say -- went into a tube and into a private aircraft that flew over the Biscaglia anchored off Garacad, swooped low over the ship to take photographs of 28 crew members standing on the deck -- proof of life -- swung back around and dropped the tube, parachute blooming, which fell softly into the ocean. Also in the tube was a cash-counting machine. When the crew returned to India several days later, they walked together into the Bombay airport terminal and were mobbed by media, camera flashes popping. Before the tube of cash parachuted into the water, ISEC's lawyers drafted an actual contract, signed by both parties, ship-owner and pirate gang. The irony was not lost on anyone: drafting a contract for the release of a thing from the very party that stole it from you. Among the last things Christodoulou told Abbas was a half joke that later became the full truth: You're going to put me out of business, and then I'll need to find a job. And Abbas said: I'll give you a good reference. Earlier this year, ISEC sold the Biscaglia and its sister ship to a Turkish company. Despite Christodoulou's belt-and-suspenders approach to insurance coverage, enough gray-zone costs came out of the hijacking that it overwhelmed ISEC. Repairing the ship, for instance -- ships sitting idle for long periods don't do well -- cost hundreds of thousands of dollars. A poor market for seaborne shipping rates didn't help matters. And so ISEC has been dissolved, and Christodoulou is looking for a new job. But in some respects, more than a year later, he remains in Somalia. He's adamant about the subject of piracy; he still gives his talks at shipping-industry conferences. He keeps in touch with some of the Biscaglia crew. And if he does return to the shipping world for employment, he'll assuredly be forced to confront the subject once more. Piracy, after all, is in the nature of shipping. During an interview session not long ago in the lobby of a Manhattan hotel, Christodoulou pulled out one of his cell phones -- not the football. He scrolled through his contact list. Under the "A"s was "Abbas." He held the phone up: in underscored blue lettering, a pirate's hotmail. "He gave it to me," Christodoulou said. "In case we ever had to communicate again." -- Written by Scott Eden in New York