The Suez Canal mishap is a foretaste of the new cold war stakes

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The blockage of the canal sheds light on the potential effects of maritime trade disruptions in times of crisis, especially in China, which is peculiarly vulnerable

  • By David Fickling and Anjani Trivedi / Bloomberg Opinion

After a tumultuous year of economic crisis and international tensions amid the COVID-19 pandemic it is somehow comforting to be confronted with a global threat that looks so much like a slapstick routine.

The grounding of one of the world’s largest container ships in the Suez Canal, wedging its vast bow into the sandy bank and blocking a crucial global trade route, became an Internet meme almost faster than it has disrupted international goods flows.

However, it would be wrong to underestimate the seriousness of the event. The blockage of chokepoints for global shipping has been an economic vulnerability that has driven centuries of great power competition.

At the moment, it is one of the key engines of rising tensions between Washington and Beijing, driving everything from China’s Belt and Road Initiative and its support for Myanmar’s coup to its assembly of a flotilla off the coast of the Philippines and the threatening noises being made over Taiwan.

The flow of goods by sea accounts for 70 percent of total international trade, and the chokepoints in that network have inspired international conflict and commerce for millennia.

The Greco-Persian wars of the fifth century BC were fought, at least in part, over control of the trade routes for Black Sea grain that kept Greece’s city-states alive.

The coasts of India’s Kerala and Tamil Nadu states have been hubs of the world economy since antiquity, because of their role as transit points for the monsoon trade routes that brought Chinese silk to ancient Rome and African timber to the Persian Gulf.

When Portuguese traveler Tomo Pires in 1512 visited Malacca on the west coast of Malaysia, he found a cosmopolitan city where 84 languages were spoken and traders hailed from as far as Abyssinia, Armenia, China and the Maluku Islands near New Guinea.

“Whoever is lord of Malacca has his hand on the throat of Venice,” he wrote.

For all that aviation and telecommunications have transformed global commerce over the past century, control of the straits through which the world’s shipping passes is probably more important now than it has ever been.

About two-thirds of the world’s international crude oil trade and 80 percent of petroleum products move by sea. Almost 10 percent of total seaborne oil, 8 percent of liquefied natural gas and 20 percent of container volume passes through the Suez Canal, data from the US Energy Information Administration and S&P Global Market Intelligence show.

The pandemic has made sea routes even more important. Shipping rates have surged along with volumes, with the World Container Index of rates for shipping a 40-foot container on east-west routes at US$4,942.72 last week, up from US$851.08 a year earlier.

As supply chain disruptions — from weather to sudden, outsize demand — add up, creating shortages across industries, the importance of hiccups such as the Suez Canal accident rises.

By the numbers, the canal remains one of the most critical trade routes, especially for Asia and Europe. In 2019, almost 19,000 ships went through the passage — or almost 1.13 billion tonnes of cargo. Hundreds of thousands of containers on vessels carrying machinery, electronics, other intermediate goods and raw materials traverse the canal every week from Asia to Europe and back.

South Korean exports to Europe jumped more than 48 percent last month, led by healthcare-related goods and autos. The rising demand for such goods was already contending with a shortage of containers.

Tonnage through the Suez has increased primarily due to the increasing size of ships. The MV Ever Given, one of the biggest class of container vessels capable of carrying 20,000 12-foot containers at a time, is so large that it can barely squeak through the Malacca Strait.

Average daily transits through the canal have been rising since the second half of last year, with sea freight rates and container volumes up sharply.

Shippers have looked for alternate routes between Asia and Europe, such as the lengthier and costlier Cape of Good Hope or the faster Arctic sea routes.

Global warming and melting ice have allowed easier access in the seas north of Siberia, but regulatory and geopolitical hurdles remain. As does the question of commercial viability: The seas are too shallow to allow the passage of giant Ever Given-sized container ships.

For China, this is a unique vulnerability. Unlike the US, which is a net exporter of crude oil, China imports nearly three-quarters of the oil it consumes, as well as about four-fifths of the iron ore it uses to fuel its frantic pace of infrastructure build-out — not to mention that most of the goods it exports it uses to obtain hard currency to pay for these commodities.

That makes it peculiarly vulnerable to maritime blockades. The geography of East Asia means that the straits of Malacca and Singapore, plus the quasi-straits that run through the navigable stretches of the South China Sea, and those separating Taiwan from the Philippines and Japan’s Okinawa from China, are all highly vulnerable to interdictions in the event of conflict.

Much of China’s foreign policy over the past decade makes more sense as a way of overcoming those vulnerabilities. Chinese companies hold stakes of close to 65 percent in the world’s busiest ports, Gavekal Dragonomics has said.

An infrastructure corridor through Pakistan, petroleum pipelines through Myanmar and an intermodal rail route across the Malay Peninsula serve to reduce China’s dependence on the straits of Malacca and Singapore. Asserting claims in the South China Sea, similarly, makes it harder for Southeast Asian neighbors and the US to threaten trade.

Even the nationalistic pressure over Taiwan has an economic element in the background: As much as half of China’s shipping is coastal transport between domestic ports up and down the coast, much of it in the waters separating Taiwan proper from Kinmen Island, which is about 6km from the Chinese city of Xiamen.

That is good reason to take the Suez mishap seriously, even if the disruptions to the world’s supply chains iron themselves out after a few days. If history repeats itself, it should be hoped that the current farcical events are not a rehearsal for a more tragic encore.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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