How important is the Taiwan Strait? Taiwan's military exercises 'affect' the global shipping industry

China's large-scale military exercises in the Taiwan Strait will force some ships to take detours, further impacting the already fragile supply chain and highlighting the importance of this crucial global supply chain route.

Following US House Speaker Pelosi's visit to Taiwan, the People's Liberation Army announced that it would conduct important military exercises for three days from 12:00 on August 4 to 12:00 on August 7 in six sea and air areas surrounding Taiwan. Subsequently, the end time of the military exercise was extended from noon on the 7th to 10:00 am on the 8th.

According to Business Insider, the PLA's military exercises cover the Taiwan Strait, a key global shipping lane through which many Northeast Asian cargo ships from China, Japan, and South Korea enter Western markets. Data shows that about 50% of the world's container ships passed through the Taiwan Strait last year.

According to Bloomberg, informed sources revealed that affected by the Chinese military exercises, LNG ships currently heading to North Asia are changing course or slowing down, which will affect shipments to Taiwan and Japan in the near term. Meanwhile, several shipping companies are reassessing their routes.

Shipping brokers speculate that shippers may need to reroute ships through the East Taiwan Strait instead of the Taiwan Strait, causing a delay of about three days; although this may exacerbate the shortage of LNG against the backdrop of the global energy crisis, such "several days of transportation delays" are common and similar delays occur every year during typhoon season.

Bloomberg believes that the military exercises may impact the global supply chain, causing delays due to rerouting, triggering chain reactions, and hindering energy transportation.

Bloomberg compiled data showing that the Taiwan Strait is a key artery of the global supply chain, with nearly half of the world's container ships passing through the Taiwan Strait this year. CNN stated that nearly 90% of the world's largest container ships pass through the Taiwan Strait this year.

VesselsValue analyzed the location data of merchant ships currently in Taiwanese waters and heading to Taiwan. As of Wednesday, 256 container ships, tankers, and bulk carriers were found in Taiwanese waters, with another 308 scheduled to arrive. Among the inbound container ships, tankers, and bulk carriers, 60 are scheduled to arrive before the end of the Chinese military exercises on Sunday.

Despite this, major global shipping companies believe that the short-term impact of the military exercises on shipping will be minimal. Yang Ming Marine Transport Chairman Cheng Zhenmao said: "Ships don't have a fixed course like airplanes, so we just need to avoid these exercise areas, and the cost shouldn't be significantly affected."

Maersk CEO Soren Skou said: "The Taiwan Strait is the only way to the other side of the Taiwan Strait. Detours will increase the distance and reduce the volume because the journey will be more time-consuming; the Taiwan Strait is one of the busiest shipping lanes in the world, and a blockade would severely damage global shipping. Soren Skou said that for now, we haven't seen any substantial restrictions in the Taiwan Strait, but we need to see how China reacts in the next few days."

Zvi Schreiber, CEO of logistics technology company Freightos, pointed out that although China's actions have not yet seriously disrupted the shipping industry, there will inevitably be an impact in the long run; regional conflicts may force ships to choose other routes, increasing transportation time, disrupting shipping schedules, and causing further delays and costs.

According to the latest data, about 48% of the world's 5,400 container ships passed through the Taiwan Strait in the first seven months of this year, including goods such as clothing, home appliances, mobile phones, and semiconductors, which are continuously shipped to various parts of the world.

In addition, according to data from analytics firm Vortexa, about 14% of China's oil tankers and liquefied gas carriers passed through the Taiwan Strait this year, usually smaller or shorter-range vessels, while larger tankers sail in the waters east of Taiwan. Anoop Singh, shipping risk manager at oil tanker research firm Braemar, pointed out that large tankers have raised their security alert levels and changed course. Shipping insurance groups have also issued warnings to members, urging caution when sailing around Taiwan.

Although oil tankers and container ships are still docking normally in Taiwan, analysts warn that global trade is still recovering from the impact of the epidemic, and even minor shipping delays will cause problems.

Peter Sand, chief analyst at Norwegian transport data and procurement company Xeneta, said that ships bypassing tense areas mean more difficulties for the supply chain. Peter Sand said that Shanghai, one of the world's busiest ports, is on the other side of the military exercises. If the conflict in the Taiwan Strait escalates, the port of Shanghai will also be affected, but it is expected to return to normal next week.