Taiwan Turmoil prompts detours, Troubles and Delays for global shipping

Taiwan Turmoil prompts detours, Troubles and Delays for global shipping

Chinese military exercises around Taiwan are set to disrupt one of the world's busiest shipping zones causing detours and delaying energy supplies. The drills, China's largest-ever around Taiwan, are a major show of strength after US House Speaker Nancy Pelosi infuriated Beijing by visiting the island.

Analysts say the development highlight the island's critical position in already stretched global supply chains.

Where is this happening?

The manoeuvres kicked off Thursday and will take place along some of the busiest shipping routes on the planet used to supply vital semiconductors and electronic equipment produced in East Asian factory hubs to global markets.

As per Wall Street Journal, the exercises are occurring in six zones delineated by the Chinese military. Several are facing the island’s biggest commercial ports and infringe on what Taiwan claims as its territorial waters, as per the report.

The exercise zones are encircling Taiwan and the Taiwan Strait, a main ocean route for vessels sailing to or from China, Taiwan, Japan and South Korea.

As per Bloomberg, local branches of China’s maritime safety administration have already issued multiple warnings for ships to avoid certain territories. The Fujian regulator warned ships are banned from sailing into the areas where exercises will be conducted from Thursday to Sunday.

Taiwan’s Maritime and Port Bureau warned ships to find alternative routes to access and depart from seven major ports on the island during China’s drills, according to the Apple Daily.

What’s the IMPACT on GLOBAL SHIPPING?

Taiwan says the exercises could disrupt 18 international routes.

Explained How Chinese military drills around Taiwan will disrupt global shipping

Even a small disruption in global supply chains, already battered by the COVID-19 pandemic and Russia's invasion of Ukraine, could prove costly.

Nearly half the world's container ships passed through the narrow Taiwan Strait, which separates the island from the Chinese mainland, in the first seven months of this year, according to data compiled by Bloomberg.

The routes are also a key artery for natural gas.  Suppliers are rerouting or reducing speed on some liquefied natural gas vessels currently en route to North Asia, people familiar with the matter told Bloomberg. They added that shipments to Taiwan and Japan this weekend would be affected.

Those in the shipping industry told Bloomberg a delay of up to three days could be created as vessels may need to be rerouted around the eastern side of the island, rather than through the busy waterway between mainland China and Taiwan.

“Taiwan’s ports are open,” Soren Skou, chief executive of Danish container ship company AP Moller-Maersk told Wall Street Journal. “We just have to move around the areas of the exercises.”

Some cargo ships and oil tankers are re-routing around the island to avoid confrontation with the Chinese military, adding around half a day to voyages, analysts and ship owners told Reuters.

“Shanghai, the world’s busiest port, is literally next door and any major disruption will affect the Chinese merchant fleet as well,” Peter Sand, chief analyst of maritime data provider Xeneta told Wall Street Journal. “It’s in no one’s interest to escalate the tension and the expectation is for a return to normal, starting next week.”

"Given that much of the world's container fleet passes through that waterway, there will inevitably be disruptions to global supply chains due to the rerouting," said James Char, an associate research fellow at Singapore's S. Rajaratnam School of International Studies.

"China's planned live-fire exercises are occurring in an incredibly busy waterway," Nick Marro, the Economist Intelligence Unit's lead analyst for global trade, wrote in a note.

"The shutting down of these transport routes -- even temporarily -- has consequences not only for Taiwan, but also trade flows tied to Japan and South Korea."

Several cargo companies are waiting to see the drill’s impacts, while others claiming its business as usual, Sky News reported.

Explained How Chinese military drills around Taiwan will disrupt global shipping

The uncertainty dragged the Taiwan Taiex Shipping and Transportation Index, which tracks major shipping and airline stocks, down 1.05 percent on Thursday.

The index was down 4.6 per cent since the beginning of the week.

Taiwan's Maritime and Port Bureau has warned ships in northern, eastern and southern areas to avoid the areas being used for the drills.

Several shipping companies contacted by AFP said they were waiting to see the impact of the drills before rerouting. The ongoing typhoon season made it riskier to divert ships around the eastern coast of Taiwan through the Philippine Sea, some added.

Others said they would stick to their schedules. "We don't see any impact during (this) period and we don't have any plan on re-routing our vessels," said Bonnie Huang, a spokesman for Maersk China.

IMPACT ON AIR FREIGHT 

Over the last two days, more than 400 flights were cancelled at major airports in Fujian, the Chinese province closest to Taiwan, signalling that the airspace could be used by the military.

Taiwan's cabinet meanwhile, has said the exercises would disrupt 18 international routes passing through its flight information region (FIR).

Aggressive posturing

During the previous Taiwan Strait Crisis in the 1990s, China conducted military exercises for months, including lobbing missiles into waters off Taiwan and rehearsing amphibious assaults on the island.

"The Chinese undoubtedly wanted to demonstrate resolve in ways that went beyond what they did in 1996," said Bonnie Glaser, director of the Asia programme at the US-based German Marshall Fund think tank.

China's Global Times newspaper said Wednesday the drills were aimed at showing that China's military is "capable of blockading the entire island".

Disruptions can hurt Chinese Economy

China's ongoing economic challenges mean it is unlikely to risk a major disruption and would limit itself to aggressive posturing, analysts said.

"Closing off traffic through the Strait for any extended period of time will also hurt the Chinese economy," Char said.

"It's not in Beijing's interest to interrupt civilian travel and trade in the region," said Natasha Kassam of the Lowy Institute, an Australian think tank.

The extent to which China will escalate its response to the Pelosi visit -- flexing its military muscle, cyber attacks and economic sanctions -- will be seen.

Given its military advances, "China very likely has the ability to enforce an air and maritime blockade against Taiwan," said Thomas Shugart, an expert at US think tank the Center for a New American Security.

"Whether China will choose to attempt such a blockade... is largely a matter of how much political and economic risk the Chinese Communist Party's leaders are willing to incur."