Posted by Jay Livingston
It’s not every day that you see a headline story about J.P. Morgan ship full of cocaine.
In fact, you probably didn’t see it yesterday. The above headline is from Business Insider . The Wall Street Journal put story in the “Logistics Report,” basically the shipping news.
The J.P. Morgan part of the headline is a bit misleading. It’s not the bank; it’s J.P. Morgan Asset Management. The ship belongs to Mediterranean Shipping Co., which apparently got their financing from Morgan. The ship is worth $90 million.
| The Gayane was raided on June 17 by U.S. Customs and Border Protection agents who found about 20 tons of cocaine with a street value of $1.3 billion stashed in several containers. The ship had sailed from Freeport in the Bahamas and before that it called in Panama and Peru after starting its voyage in Chile. It was due to sail on to Europe after the U.S. stop. |
That $1.3 billion sounds like a lot of money. It’s supposed to. That’s why the police and the press use street value. The actual cost to the drug suppliers is much less. Here’s the math. The 20 tons of coke is about 18,000 kg. So the $1.3 billion works out to $72,000 per kg. Divide that by 1000, and you get $72 per gram. In the US, a gram of coke goes for around $50 in most places, but maybe the $1.3 billion is based on European prices.
The coca leaf that went into that $72,000 kilo cost something more like $720. The cocaine itself cost less than $7000 a kilo at the ports of Peru or Colombia and perhaps only $2-3000 in the jungles. So the cost to replace the seized product is probably between one twentieth and one tenth of the street value. That’s still a lot of money — $65 million or more — but well under the $1.3 billion street value reported by law enforcement. (More on drug costs and prices here.)
There’s one other intriguing aspect to this news story. Most of the time, when a deal goes bad — say when someone does something that loses someone else their $90 million ship that now belongs to the Feds— there’s a lawsuit. But as Matt Levine at Bloomberg (here) points out, the folks whose 10,000 barrels of cocaine got seized aren’t likely to seek their day court.
| JPMorgan might lose a $90 million ship, but the drug dealers have definitely lost $1.3 billion of cocaine! If I were the JPMorgan fund manager who owned this ship, I’d watch my back for a while; the Feds may be the least of their worries. |
To repeat, the drug dealers lost far less than $1.3 billion. But whatever their losses, what can they do? I would think that drug lords use violence in a rational way — to set an example so as deter people who might be in a position to harm them. Who would that be? Even if the financing deal were made by an identifiable person or a few people rather than by an asset management firm, why would the drug dealers want to deter other asset managers who might be thinking of making deals with ship companies?
If anybody should be worried, it’s the eight Serbian and Samoan crew members, now in custody, who loaded the cargo and who the drug biggies might suspect of, intentionally or inadvertently, tipping off the Feds.
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