From FreightWaves, April 7:
Taiwan tensions are latest flash point; geopolitics is reshaping trade
Another meeting between a House speaker and Taiwan’s president, another spike in tensions in the Taiwan Strait.
Last summer’s meeting between Taiwan President Tsai Ing-wen and Nancy Pelosi prompted Chinese live-fire exercises. Wednesday’s meeting with Speaker Kevin McCarthy prompted another large-scale Chinese military exercise in the Taiwan Strait, with the situation becoming increasingly tense by Sunday.
Ever-worsening relations between China and the U.S. — which took yet another big step down after February’s spy balloon incident — are part of an evolving story for international trade. Shipping fleets and cargo flows are becoming increasingly bifurcated.
In 2022, the Word Trade Organization (WTO) warned about a worst-case scenario it called “long-run decoupling” that involved the “disintegration of the global economy into two separate blocs,” highlighting research by Carlos Goes and Eddy Bekkers.
A WTO working paper published this January analyzed an outcome called “geopolitical rivalry,” featuring a “bipolar trade war” with severe consequences for future GDP and trade volumes.
The authors (Jeanne Metivier, Marc Bacchetta, et. al.) looked at two sub-scenarios: “full rivalry,” in which all countries join either the Western or Eastern trade bloc, and “partial rivalry,” in which some countries remain neutral and trade with both.
The “partial rivalry” scenario should sound very familiar to those following current developments in ocean shipping, most visibly in tanker shipping, but also in container and dry bulk shipping.
Geopolitics is cleaving global shipping systems into two, with the U.S. and EU leading one side and China and Russia leading the other, and some countries trying to stay in the middle, play both sides and keep their options open.
Tankers: Near-term positive
The geopolitical schism is initially positive for tanker shipping rates but has the potential to turn negative in the future.The Russia-Ukraine war rerouted Russian crude from the short-haul EU trade to long-haul runs to China and India, and Russian diesel from the EU to replacement buyers in North Africa, Asia and South America. The EU replaced lost Russian barrels with more-distant supplies from the U.S., the Middle East and Asia.
Shipping demand is measured in ton-miles: volume multiplied by distance. The post-invasion trading pattern is far less efficient than the pre-war pattern, significantly boosting tanker ton-miles, a plus for freight rates.
The same distance effect was seen previously after sanctions against Iran, which shifted Iranian crude exports that previously went to the EU and India onto longer routes to China; and with sanctions against Venezuela, which shifted that country’s crude exports from the U.S. to China.
Geopolitics has also caused a bifurcation in the tanker fleet, a physical manifestation of the decoupling scenario laid out by the WTO.....
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