Suez Mishap Is a Foretaste of the New Cold War Stakes

by Peter Fickling, Bloomberg News, March 25, 2021

Ships so big they get stuck in the Canal literally define “chokepoint” but other waterways will play much more serious roles as the rivalry between China and the U.S. heats up.

The bow of container vessel MV Ever Given after running aground in the Suez Canal.

The bow of container vessel MV Ever Given after running aground in the Suez Canal. Source: Suez Canal Authority/via AP Photo

After a tumultuous year of pandemic, economic crisis and international tensions, it’s 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, has become an internet meme almost faster than it’s disrupted international goods flows.

It would be wrong to underestimate the seriousness of the event, though. The blockage of chokepoints for global shipping has been an economic vulnerability that’s driven centuries of great power competition. Right now, it’s 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 maritime flotilla off the coast of the Philippines and the threatening noises being made over Taiwan.

The flow of goods by sea accounts for 70% of total international trade, and the chokepoints in that network have inspired both international conflict and commerce for millennia. The Greco-Persian wars of the 5th 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 the Portuguese traveler Tomo Pires visited Malacca on the west coast of Malaysia in 1512 he found a cosmopolitan city where 84 languages were spoken and traders hailed from as far afield as Abyssinia, Armenia, China and the Molucca 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’s ever been. About two thirds of the world’s international crude oil trade and 80% of petroleum products move by sea. Almost 10% of total seaborne oil, 8% of global LNG and 20% of container volume passes through Suez alone, according to data from the U.S. Energy Information Administration and S&P Global Intelligence.

The pandemic has made sea routes even more important. Shipping rates have surged along with volumes, with the WCI Composite index of rates for shipping a 40-foot container on east-west routes at $4,942.72 last week, up from $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 like the Suez accident rises.

By the numbers, the Suez 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 1.25 billion tons 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 over 48% in February, led by healthcare-related goods and autos, for instance. 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 Ever Given, one of the biggest class of container vessels capable of carrying 20,000 20-foot boxes at a time, is so large that it can barely squeak through the straits of Malacca. 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 like 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 U.S., which is a net exporter of crude these days, 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 buildout — not to mention most of the goods 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, Japan’s Okinawa islands and the Chinese mainland, 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% in the world’s busiest ports, according to Gavekal Dragonomics. An infrastructure corridor through Pakistan, petroleum pipelines through Myanmar, and intermodal rail route across the Malay peninsula — all key elements of President Xi Jinping’s Belt and Road Initiative — 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 U.S. 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 from its Kinmen island, which is about 6 kilometers (about 4 miles) off the mainland city of Xiamen.

That’s 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, we should hope that the current farcical events aren’t a rehearsal for a more tragic encore.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the authors of this story:
David Fickling at 
Anjani Trivedi at 

To contact the editor responsible for this story:
Howard Chua-Eoan at 

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Read more opinionFollow @davidfickling on Twitter

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