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  • Somali pirates are back on the attack at a level not seen in years, adding to global shipping threats

    Somali pirates are back on the attack at a level not seen in years, adding to global shipping threats

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    PUNTLAND, SOMALIA – JANUARY 29: Puntland Maritime Police Forces (PMPF) are patrolling against the recently increasing pirate attacks off the coast in Puntland, Somalia on January 29, 2024. (Photo by Abuukar Mohamed Muhidin/Anadolu via Getty Images)

    Anadolu | Anadolu | Getty Images

    Somali pirates are back on the attack, with piracy around the Horn of Africa rising sharply in recent months and adding to concerns for shipping vessels, government forces and private security already locked in a battle in the Red Sea with Houthi rebels.

    Over the past three months, there has been more piracy in the Horn of Africa region than at any point in the last six years, according to Royal United Services Institute (RUSI), an independent think tank, with high ransoms for seafarers or vessels, and robbing of ship passengers by pirates.

    Piracy off the coast of Somalia had been on the decline in recent years after peaking in 2011 when Somali pirates launched 212 attacks. The United Nations Security Council (UNSC) passed seven resolutions targeting Somalia piracy between December 2010 and March 2022, permitting foreign naval and air forces to enter and patrol Somali waters and authorizing the European Union Naval Force Operation Atalanta, working with a U.S.-led task force, to use “all necessary means to repress piracy and armed robbery at sea.” 

    The cost of piracy to the global economy is a steep one. A 2013 World Bank study, still widelt cited today, estimated that piracy cost the global economy around $18 billion annually.

    According to the UNSC, the anti-piracy measures in place to enforce the freedom of navigation off the coast of Somalia expired quietly after its last renewal for three months after December 3, 2021.

    Since last November, merchant vessels have been the target of about 20% of Somali piracy-related incidents, according to Dan Mueller, lead analyst for the Middle Eastern Region for maritime security firm Ambrey. On December 14, The International Chamber of Shipping reported the hijacking of a Handymax bulk carrier, the first successful hijacking of a vessel off the coast of Somalia since 2017. The pirates have also been attacking fishing vessels, mostly Iranian, as well as many other small boats such as skiffs.

    Ocean piracy is rising across the world

    Data from 2023 shows that by many key measures, piracy is on the rise in key global shipping lanes.

    There were 120 incidents of maritime piracy and armed robbery against ships reported in 2023, compared to 115 in 2022, according to the annual Piracy and Armed Robbery Report of the ICC International Maritime Bureau (IMB). The IMB also found increased threats to crew safety, with the number of crews taken hostage rising from 41 to 73 in 2023, and crews kidnapped from two to 14.

    A spokesperson for the International Maritime Organization (IMO) which represents the seafarer spokesperson stressed to CNBC in an email, “The entire world depends on international shipping and seafarers, and therefore ships and cargoes should not be the subject of any type of attacks. The safety of seafarers are paramount – they are innocent victims who are simply doing their jobs in very harsh conditions.”

    The UNSC did not respond to CNBC’s request for comment about reinstating anti-piracy resolutions related to Somalia.

    The IMO said it is working very closely with countries in the region through the Djibouti Code of Conduct to address piracy and avoid any escalation, through capacity-building, national legislation, information sharing and regional coordination.

     “We are also looking the possibility of updating the IMO guidance on piracy to take into account new threats and technologies that can affect the safety of seafarers,” said a spokesperson.

    A 2010 photo of an armed Somali pirate keeping vigil on the coastline at Hobyo, northeastern Somalia, while the Greek cargo ship, MV Filitsa is anchored just off the shores of Hobyo where it was held by pirates after beimng captured some 513 nautical miles northeast of the Seychelles as it was sailing from Kuwait to Durban in South Africa loaded with fertilizer. 

    Mohamed Dahir | Afp | Getty Images

    According to maritime security firm Dryad Global, shipping from the coast of the Horn of Africa to the coast of India is considered a “high risk zone.” There are 25 countries in the region with their naval forces, but given the size of the area, the numbers are not a sufficient guarantee of safe navigation.

    A slight increase in piracy has also been recorded in the Gulf of Guinea on Africa’s West Coast, where 22 piracy incidents were recorded in 2023, compared to 19 in 2022, 35 in 2021, and 81 in 2020. According to the IMB, these waters accounted for three of the four globally reported hijackings, all 14 crew kidnappings, and 75% of reported crew hostages and two injured crew in 2023.

    The Singapore Straits are another area of concern due to the high number of incidents in the region. While the IMB considers these incidents low-level opportunistic crimes, 95% of the reported incidents were successful.

    “Crew continue to be harmed with nine taken hostage and two threatened. Guns were reported in three recorded incidents and knives in 15,” the IMB report noted.

    Maritime security efforts

    To help deter piracy and enhance maritime security, vessels deploy what’s called Best Management Practice (BMP) 5 when operating in the Red Sea, Gulf of Aden, Indian Ocean, and Arabian Sea.

    “Private armed security teams have proven effective alongside BMP 5 measures,” Mueller said. “An adequate citadel has proven vital to enable the crew to remain safe until military responses can be coordinated.”

    Citadels are a pre-determined fortified area on a vessel built to resist pirates from gaining entry for a period of time to protect a crew.

    Dozens of companies in the maritime security space could see an increase in their business as the threats against commercial shipping widen. The size of the maritime safety market has grown to keep up with the flow of trade and will grow from $19.85 billion in 2023 to $21.18 billion in 2024, according to ResearchAndMarkets.com, and is forecast to reach $25.93 billion in 2028 at a compound annual growth rate of 5.2%. The list of major companies operating in the market of maritime safety systems includes several niche players as well as major industrials and defense contractors, such as Raytheon, Honeywell International, Elbit Systems Ltd., L3Harris Technologies, Lockheed Martin, and General Dynamics Corporation.

    Mueller said the Indian Navy and Coast Guard along with the EU Operation Atalanta and national counter-piracy missions are active in the region where Somali pirates have attacked.

    “Indian forces have successfully operated against PAGs [pirate action group] in four boarding incidents,” he said.

    U.S. and allied defense

    On February 1, the Biden Administration approved a $3.99 billion sale of drones and military equipment to India to be used to augment its maritime safety and surveillance. Included in the sale, according to the State Department: 31 Sky Guardian drones, 310 small-diameter bombs, 170 Hellfire missiles, and other related support equipment.

    A spokesperson for the Atalanta anti-piracy effort based out of the Rota Naval Base, Spain, told CNBC via email that the coalition of maritime forces protecting against pirates around the Horn of Africa will be enhanced.

    “In a week’s time, we will have additional ships and forces deployed to the area. We will do our utmost to continue fulfilling our missions, which include the fight against piracy and the protection of Word Food Programme vessels and all vulnerable vessels in our Area of Operations against these criminal networks,” the spokesperson wrote. “We will continue to work together with our international partners to maintain maritime security.”

    Atalanta includes permanent flagship vessel ESPS VICTORIA and at certain periods of time, numerous other vessels to support the operation. EUNAVFOR currently has four more ships offering support: ITS Martinengo, FS Alsace, FS Languedoc, and ITS Duilio. The spokesperson said EU member state support allows the operation to increase the number of assets very quickly, if necessary.

    In response to a question from CNBC about expanding Red Sea security coverage to the Somali Coast, a U.S. Navy spokesperson wrote, “To protect operational security and the safety of our service members, we do not discuss or forecast future operations or postures.”

    “What we can tell you is that Operation Prosperity Guardian (OPG) is working with participating countries to utilize increased patrols in the Red Sea to offer reassurance to the shipping industry and protect maritime traffic,” the Navy spokesperson said.

    In the Red Sea, the U.S. Navy is working with allies to increase efforts to prevent Houthi rebel attacks, which are continuing despite multiple U.S. airstrikes against Houthi targets. Much merchant vessel traffic is now taking the longer transit around the Cape of Good Hope instead of transiting the Red Sea. French ocean carrier CMA CGM is among firms to fully halt its Red Sea transits, according to a person familiar with the matter. It joins shipping giants MSC, Maersk, Hapag Lloyd and others who have earlier announced they were diverting away from the Red Sea. According to Kuehne + Nagel data, almost 100% of the former Red Sea traffic has been rerouted around the Cape of Good Hope.  

    The Houthis most recent attacks on commercial vessels in the Red Sea this week were against a commercial container vessel and a U.S.-owned bulker vessel carrying U.S. cargo. The Houthis have attacked commercial shipping a total of 39 times.

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  • Tesla is a ‘soft landing’ stock, says Goldman Sachs. Here are its picks for a gentle economic landing and stocks for a recession.

    Tesla is a ‘soft landing’ stock, says Goldman Sachs. Here are its picks for a gentle economic landing and stocks for a recession.

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    Pour one out for the beleaguered economists, who for once got an important indicator, the consumer price index, right on the nose, after CPI fell 0.1% in December, while core prices rose 0.3%.

    “The 2021 surge in durable goods demand normalized, and the resulting collapse in durable goods price inflation was stunningly fast,” says Paul Donovan, chief economist of UBS Global Wealth Management.

    “The commodity wave of inflation is fading, and that leaves the profit margin expansion in focus,” he adds. What a good time for earnings season to be upon us, and what do you know, it is, kicking off with the banking sector on Friday before broadening out next week.

    Strategists at Goldman Sachs have a new note out, saying that the market is pricing in a soft landing even though the trend of earnings revisions points to a hard landing.

    They’re not that optimistic — even in the soft-landing scenario, the team led by David Kostin say the S&P 500
    SPX,
    +0.40%

    will end the year right around current levels, at 4,000. But they identify 46 stocks that could benefit — profitable, cyclical companies that are trading at price-to-earnings valuations below their 10-year median, among other factors.

    One name jumps out: Tesla
    TSLA,
    -0.94%
    ,
    which trades at 22 times forward earnings versus the 10-year median of 117 times. But the other 45 names are less flashy, ranging from Capital One
    COF,
    +1.81%

    and Carlyle Group
    CG,
    +0.54%
    ,
    to a host of industrials including 3M
    MMM,
    +0.12%
    ,
    Parker-Hannifan
    PH,
    +0.73%

    and Otis Worldwide
    OTIS,
    +0.42%
    .
    As a whole, these typically $10 billion companies are trading at 12 times earnings, versus 17 times usually.

    In the hard landing scenario, S&P 500 profit margins would shrink by 125 basis points, to 10.9% — about in line with the median peak-to-trough decline during the eight recessions since 1970, which has been 132 basis points. Consensus expectations are for a 26 basis-point margin decline.

    The Goldman team also have a 36 stock screen for a hard landing — profitable companies in defensive industries with a positive dividend yield. They’re typically food, beverage and tobacco companies as well as software and services companies — including Costco Wholesale
    COST,
    +0.58%
    ,
    Kroger
    KR,
    -0.99%
    ,
    Altria
    MO,
    +0.48%
    ,
    Tyson Foods
    TSN,
    +0.23%
    ,
    Microsoft
    MSFT,
    +0.30%
    ,
    MasterCard
    MA,
    -1.13%

    and Visa
    V,
    -0.25%
    .
    As a whole, these $37 billion companies are trading at 22 times earnings vs. a historical 24 times.

    The market

    After a 2.3% advance for the S&P 500
    SPX,
    +0.40%

    over the last three sessions, U.S. stock futures
    ES00,
    +0.39%

    NQ00,
    +0.58%

    declined on Friday.

    The yield on the Japanese 10-year bond
    TMBMKJP-10Y,
    0.511%

    exceeded 0.5%, the Bank of Japan’s yield cap, ahead of next week’s rate decision , prompting a second day of aggressive bond purchases from the central bank.

    For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

    The buzz

    Fourth-quarter earnings were rolling out from Bank of America
    BAC,
    +2.20%
    ,
    JPMorgan Chase
    JPM,
    +2.52%
    ,
    Citigroup
    C,
    +1.69%

    and Wells Fargo
    WFC,
    +3.25%
    ,
    and outside of banks, Delta Air Lines
    DAL,
    -3.54%
    ,
    BlackRock
    BLK,
    +0.00%

    and UnitedHealth
    UNH,
    -1.23%
    .

    JPMorgan shares slumped after forecast-beating earnings, though investment bank revenue came in light of estimates. Delta shares also declined after topping earnings estimates.

    Tesla
    TSLA,
    -0.94%

    cut prices of Model 3 and Model Y vehicles in the U.S. and elsewhere by up to 20%. The electric vehicle maker stock dropped 6%.

    Virgin Galactic
    SPCE,
    +12.34%

    surged after saying it’s on track to launch space-tourism flights in the second quarter.

    Apple
    AAPL,
    +1.01%

    says CEO Tim Cook requested, and received, a pay cut after investor criticism.

    The University of Michigan’s consumer-sentiment index is due at 10 a.m. Eastern, and Minneapolis Fed President Neel Kashkari and Philadelphia Fed President Patrick Harker are due to speak.

    Tyler Winklevoss said charges by the Securities and Exchange Commission brought about Gemini Trust for allegedly offering unregistered securities were “super lame” as it seeks to unfreeze $900 million in investor assets.

    Best of the web

    There’s a bull market in swearing on corporate earnings calls.

    The West is now preparing to send tanks to Ukraine in what could be another escalation of its conflict with Russia, which on Friday claimed victory in the eastern town of Soledar.

    A look back at photos of Lisa Marie Presley, who died at age 54.

    Top tickers

    Here were the most active stock-market tickers as of 6 a.m. Eastern.

    Ticker

    Security name

    BBBY,
    -30.15%
    Bed Bath & Beyond

    TSLA,
    -0.94%
    Tesla

    GME,
    -0.68%
    GameStop

    AMC,
    +0.80%
    AMC Entertainment

    MULN,
    -8.59%
    Mullen Automotive

    NIO,
    -0.08%
    Nio

    APE,
    -2.56%
    AMC Entertainment preferreds

    AAPL,
    +1.01%
    Apple

    SPCE,
    +12.34%
    Virgin Galactic

    AMZN,
    +2.99%
    Amazon.com

    Random reads

    Like a scene out of “Stranger Things” — there’s uproar after new restrictions on the Hasbro
    HAS,
    +0.21%

    game Dungeons & Dragons.

    Starting next month, Starbucks
    SBUX,
    +1.30%

    rewards will be less generous for most items, though iced coffee will be easier to get.

    Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

    Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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