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MC Explains: How Chinese military drills around Taiwan will disrupt global shipping

International cargo traffic in Taiwan Strait has been hit and ships are looking at alternate routes. Many shipping lines were cutting short scheduled loadings for importers across Asia.

August 09, 2022 / 08:03 PM IST
Representative Image. (PC-AFP)

Representative Image. (PC-AFP)

The Chinese military, for the last week, has carried out military exercises involving missile strikes, warplanes, and ship movements crossing the midline of the Taiwan Strait.

As a response, Taiwan's military also began a live-fire artillery drill simulating a defense of the island against an attack after days of massive Chinese military exercises.

All the while, international cargo traffic in the Strait of Taiwan has been hit and ships are looking at alternate routes.

"The number of shipping vessels operating in the Taiwan Strait has dropped from around 250 a day to just 15-20 ships a day, after the Chinese military blocked six zones in the Strait," a trader based out of Singapore told Moneycontrol. 

He added that many shipping lines were even cutting short scheduled loadings for importers across Asia.

The Chinese government has been firing missiles across the Taiwan Strait in protest of a visit by US House Speaker Nancy Pelosi.

China said that Pelosi's visit violated its sovereignty as it sees Taiwan as part of its territory and has vowed to take control of it.

Importance of Taiwan Strait

The Taiwan Strait is a very big part of international shipping lines and in 2021-22 nearly half of the global container fleet passed through this stretch, analysts said.

Due to the on-going military actions in the strait, shipping lines have been forced to reroute or reduce speed of some vessels currently en route to North Asia.

Shipments to Taiwan and Japan are also expected to be affected as long as the military actions from either side continue.

“The global supply chain is interconnected and all the major stretches like Taiwan Strait are nerve centres of these value chains. And if any one stretch is blocked, the undercurrents are felt across the system. Especially at a time when the industry is busy shipping cargo for the peak season, the impact will be reverberated across. What will decide the degree of impact is the tenure of this disruption,” said Christian Roeloffs, Co-founder and CEO, Container xChange, a technology marketplace and operating platform for container logistic companies.

MC explains logo

However, most analysts do not expect military activity to continue in the Taiwan Strait, as none of the ports in either China or Taiwan have been closed till now.

“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.”

China has also suspended the import of citrus fruits and fish (chilled large-head hairtail and frozen horse mackerel) from Taiwan from August 3 and has also halted its exports of natural sand to Taiwan, used in the construction and manufacture of semiconductor chips.

Impact on India

India-Taiwan bilateral trade stood at over $7 billion in 2021, and over 120 Taiwanese companies are operating in India with cumulative investments over $2.3 billion.

India and Taiwan also have a Free Trade Agreement (FTA), with a special focus on developing India into a semiconductor manufacturing hub.

The biggest import from Taiwan into India is semiconductors and electronic equipment and if military activity continues in the Taiwan Strait, automobile manufacturers and white goods makers in India will once again face a shortage of semiconductors.

"Taiwan holds a critical position in the global supply chain – manufacturing vital semiconductors and electronic equipment and controlling 10 percent of the world’s shipping container capacity," an analyst from Goldman Sachs said.

He added that till now no shipments of semiconductors to India have been affected from Taiwan but, if geopolitical tension continues to escalate between China and Taiwan, India will once again face a shortage of sem-conductors.
Yaruqhullah Khan
first published: Aug 9, 2022 08:03 pm