The global supply chain is threatened by any kind of political escalation. In the years 1995-1996, China conducted live-fire exercises around Taiwan, reducing commercial traffic through the strait and trade with Taiwan.
For example, what would happen if the strait were closed to commercial traffic? It would be a “big catch” for ship owners and operators, but also an impotence for shippers as transit times would increase, vessel efficiency would be reduced and increasing overall freight rates would cause many delays. Maersk CEO Soren Skou said, “The Taiwan Strait is one of the busiest lines in the world. So, obviously, if it were to close, it would have a dramatic impact on shipping capacity in the sense that everybody would have to divert around Taiwan and add to the length of voyages, and that would absorb a significant capacity”.
Bloomberg Economic News has made some calculations that nearly a quarter of the world’s container ships and 88% of large container ships passed through the Taiwan Strait in 2022. Several liquefied natural gas (LNG) carriers rerouted or slowed down to qualify for the upcoming exercise. Yang Ming Marine Transport chairman Cheng Cheng-mount said at a media briefing, “Ships don’t have fixed routes like planes. As long as the ships avoid the exercise area, it should be fine. It shouldn’t have much impact.”
According to VesselsValue analysis, as of this Wednesday, it has seen 256 container ships, including oil tankers and cargo ships, in Taiwanese waters, along with another 308 scheduled to arrive next week. Of those container ships, 60 are expected to arrive before the Chinese exercise ends on Sunday. The shipping agency GAC also warned that “some exercise areas are within VTS operations. The Port Control Department has set a warning range; if any ships enter this area,
VTS port will remind them and ask them to leave to avoid unnecessary accidents.”
The Swedish Club marine insurance company also considers that the military area is “very close to the major commercial ports of Taiwan, which include Keelung, Su-ao, Taipei, etc.” therefore “navigation will be more or less affected.”
Evercore ISI analyst Krishna Guha said: “Current exercises and effective partial lockdown are expected to last only a few days but could be extended or restarted, leading to a protracted crisis, as well as more severe disruption to global supply chains of chips and other technology components.”
