It is not often that you open social media or news apps (or newspapers) and see a gigantic container ship wedged between the two ends of the Suez Canal, leaving just enough space for a little canoe to pass through. Of course, canoes cannot transport containers. As the Suez Canal came to a halt last month for a period of 6 days and 7 hours, a traffic blockage was caused, preventing containers ships from moving through the waterway. The repercussions: delayed shipments, delayed trade, ships were taking longer routes via the Cape of Good Hope and finally, distressed customers and freight forwarders.
Though comical and meme-able in many ways, the consequences have little more than lasting effects as the global trade slowed down, oil prices and shipping costs rose, and finally, trade imbalance ensued. The burden of which was shared between end customers and freight forwarders. This odd incident reminded us that global trade is flimsy and delicate; the smallest of errors can cost billions (if not trillions). Like the Suez Canal, there are other straits, waterways and seas that are prone to disturbances, not in the form of an EverGreen getting stuck. The situations are of a much severe nature and depend on the fallibility of the geopolitical tensions, climate change, piracy, and geographical disadvantages within the regions. In this article, we explore the various other maritime routes specific to the Maritime Silk Road.
1. Suez Canal:
Inaugurated in 1869, the Suez Canal has been integral to Euro-Asia trade. Before the Ever-Green incident, the Suez Canal has been closed five times, and twice out of these times, it was related to a geopolitical crisis. The first, in 1956 as British, French, and Israeli forces invaded Egypt after President Abel Nassar announced the nationalization of the canal. After that, in 1967, when Egypt and Israel entered the war, the channel was shut off for eight years till a diplomatic agreement was signed, starting trade again. The other three times (2004, 2006, 2017), similar situations of vessels getting jammed or lodged caused either traffic blockage or slowdown for short periods of time.
In the 60s and 70s, the geopolitical conflict between the warring nations pushed vessels to take longer routes. Although such disputes have been mitigated and the region is stable, it is essential to know that conflicts have a severely negative impact on shipping routes. Rail freight along the Eurasian land bridge offers an excellent alternative when Maritime routes are blocked. Similarly, during this period, air freight gained a lot of traction too.
2. Strait of Hormuz:
One-third of liquified gas and 25% of oil passes through the Strait of Hormuz. Simultaneously, this is one of the most geopolitical unstable shipping routes. Almost every few years, the Strait of Hormuz has either seen closure, naval dispute, attacks, or seizures of vessels. Iran and the US are two nations that generally use the Strait of Hormuz as a strategic chokepoint, which in turn affects global oil trade and shipping in the region. In 2019, US-Iran tensions resulted in attacks and seizure of commercial oil tankers resulting in heavy economic losses.
Generally, caution is administered through the Strait of Hormuz by surrounding nations, as other alternative methods such as the usage of Habshan-Fujairah oil pipeline helps to avoid Hormuz altogether. In recent year, the Port of Duqm in Oman has emerged as a viable option to prevent entering the Strait of Hormuz and transporting goods to UAE, Saudi Arabia and so on.
3. Malacca Strait:
Malacca Strait is a narrow stretch between the Indonesian island of Sumatra and the Malay Peninsula. It is one of the main shipping channels between the Indian Ocean and the Pacific Ocean. This Strait holds considerable economic significance for South and South-East Asia. It is also a significant part of the Maritime Silk Road. Due to its geographical narrowness at various points, traffic bottlenecks are often caused in this Strait.
For a period in the early 2000s, there was increased piracy in the region leading to attacks on commercial vessels, robbing and looting. In recent years, the attacks have almost dropped to zero. However, even during a period of heavy piracy, ships moved continuously, as nearly 40% of global trade passes through the Malacca Strait. Apart from Piracy concerns, there are environmental concerns that delay ships as annual bush fires occur in Sumatran forests, causing haze and reduced visibility. China, since the creation of the Belt and Road Initiative, has reduced its dependency on the Malacca Strait by promoting rail freight and economic corridors between China-Myanmar and China-Pakistan.
To encapsulate the case, on a day to day basis, we are not aware of the fragility of these geopolitically sensitive regions on global trade; however, spreading the risk by diversifying your business protects you from the unpredictable nature of the international business systems. Finding alternatives for your logistics business not only secures your company but also allows you to create expertise in newer fields and expand your business opportunities. Therefore, the straits, channels and seas may be time tested, but they are never picture-perfect.
Read more:
https://www.nytimes.com/2021/03/25/world/middleeast/suez-canal-container-ship.html
https://www.theatlantic.com/international/archive/2017/08/strait-of-malacca-uss-john-mccain/537471/