A guest post by Aldo Premoli, co-founder of Mediterraneo, Sicilia, Europa, on the role of maritime shipping in the global economy.
Maritime freight is one of the key elements of today’s economy. Fluidity in international markets continues to depend upon the opportunity to transport resources through key regions,which in turn buoys the level of interdependence between different countries.
Perhaps the most important of these remains the Suez Canal, which connects South and South East Asian markets to Europe and the West and currently absorbs 19% of global traffic in terms of volume and 25% in terms of number of routes. The ports that are involved in these routes are temporary homes to over two billion tonnes of cargo annually. The 30 largest ports have handled 47.8 million TEU in 2015 (twenty-foot equivalent unit, which is basically the value of a standard shipping container). This represented the end of a 425% increase from 1995’s 9.1 million TEU.
The Suez Canal
Maritime traffic in the artificial strait has increased by 120% between 2000 and 2014. Most recently, Egyptian state revenues related to freight between July 2014 and March 2015 were $4.1 billion, a 2.5% increase from the same period a year before. Over the same time span container-based traffic, which represents around half of total traffic, increased by 187%.
The Suez Mediterranean Pipeline (SUMED) is also a key passage for oil originating from the Persian Gulf and gas trade going towards European and American markets. Here too traffic has increased: from 50 million tonnes in 2000 to 178 million tonnes in 2014, which represented an increase of over 250%. According to the US Energy Information Administration, almost 3 million oil barrels a day transited through the SUMED Pipeline in 2012. 7% of oil and 13% of natural gas globally passes through this key channel.
The passage was built as an alternative way to the Suez Canal specifically for the transportation of crude resources. It consists of two parallel pipelines 320 kilometers in length which go from the Gulf of Suez to the Mediterranean Sea, just west of Alexandria.
While the overall transit flow has always been impressive, the widening of the Suez Canal was almost unthinkable until recent years. The rise in cargo and sharp fall in transit time has bolstered the strategic function of routes leveraging the passageway.
This is demonstrated by the fact that Chinese strategic activity in the Mediterranean has increased. Chinese import-export flows towards the Southern Mediterranean grew from 5.5 billion euros in 2001 to 56 billion euros in 2015. China has thus become the second largest commercial partner of the “South Med” region. While the United States continue to maintain a lead, Chinese outlays are growing at a much faster pace.
Chinese interests in the Mediterranean have also surfaced through the acquisition of the Pireo Port by government-owned Cosco, one of China’s largest freight companies. 67% of ownership of the structure is now held by the Chinese government, which ensured the country a reliable maritime freight base in the Mediterranean.
Cosco has recently merged with another large player, China Shipping Container Lines, and will guarantee over 350 million euros worth of investment towards the facility over the next decade. Through this move, Chinese commercial abilities to reach European and North American markets has been significantly strengthened, shaping the local economies along the way.
The Panama Canal
This artificial maritime pathway, which is 77 kilometers long, is proving itself as the largest new global hub. This is especially true for the United States. The recent enlargement of the canal has bolstered US commercial activity in the Atlantic coast. The 2016 renovation work doubled the capacity, allowing not only for megaship transit, but also for a new type of freight ships focused on LPG Liquefied Petroleum Gas (LPG) and Liquefied Natural Gas (LNG).
The Panama Canal is most used by American ships to reach Asia, rather than the other way around. In 2015 140 million tonnes worth of cargo went from the Atlantic to the Pacific Ocean, while 90 million moved the other way. More than 13,000 ships transited through the waterway.
The Bosporus and the Dardanelles separate Asia from Europe. The Bosporus is a natural passage 17 miles long that connects the Black Sea to the Sea of Marmara and the Aegean. This is home to the transit of petroleum resources moving to European and Mediterranean markets originating from Russia, with over three million barrels a day.
Finally, the Strait of Gibraltar continues to play a critical role given its critical position between the Mediterranean Sea and the Atlantic Ocean. Over 100,000 ships transit through Gibraltar every year for commercial purposes, with more than 300 a day transporting heavy cargo.
Asian developments in mega-ship construction
The key trend in maritime freight is the increased construction of mega-ships through commercial alliances between leading market operators. These joint ventures enable the rationalization of key routes and facilitate economies of scales. The enlargement of the Suez and Panama canals are very much the result of this dynamic, rather than the cause.
The leading players are South Korean Hyundai, Samsung, and Daewoo. Close behind come Japanese IHI-Kure, Mitsubishi, and Kawasaki.
By 2019 it is estimated that around 275 megaships will be navigating the world, with cargo loads varying from 13,000 to 21,000 TEU.
In order to maintain and manage mega-ships you need capable shipyards able to allow for docking, maneuverability, and access to specialized equipment. In the Mediterranean, it is Spain and Egypt that are adapting their sites most rapidly to receive incoming traffic. In the Atlantic Ocean, Germany, France, and the Netherlands with Rotterdam most of all have made strides to continue to strengthen their positioning by vastly expanding their port capacity.
The security of maritime straights
These waterways should also be considered for their potential vulnerability.
On paper, Suez is located in an ideal position given it is entirely embedded within a single sovereign state and is not directly bordering contested territory. However, it’s position in a highly unstable geopolitical area makes it subject to potential attacks through land or maritime platforms. Suez can also be obstructed in a number of points, through the destruction of the Suez Canal Bridge or even the el Ferdan Railway Bridge.
As far as recent political events are concerned, it does not seem like the revolutionary efforts that began in 2011 led to a significant decrease in oil and gas traffic in Suez. However, threats deriving from terrorist activity in the Sinai Peninsula have increased. Egyptian authorities have recently strengthened security measures after reports of attacks on vessels.
The peninsula is home to Bedouins, Palestinian refugees, and foreign fighters. The latter have been involved for some years in low-intensity with the Egyptian forces. Despite the absence of a conventional security threat to transit through the canal, Suez remains a vulnerable waterway.
The same is true for the Bosporus and the Dardanelles. These straits belong to a single sovereign state, but are to be considered problematic due to navigation challenges and state-imposed restrictions on transit. The physical formation of the straits render these hard to navigate due to visibility challenges, leading to frequent accidents and collisions.
The Bosporus is the narrowest strait out of highly strategic waterways and it is affected by strong currents. Between 1953 and 2002 the passage witnessed 461 accidents, the majority of which were caused by collisions. Because of this, the Turkish government imposes restrictions on navigation, even though commercial transit is usually unhindered during peacetime.
Turkey is a strategic location not only because of oil transit but also for natural gas, as it connects the second largest market, Europe, with Middle Eastern and Central Asian reserves. For this reason, the straits have become increasingly important and have witnessed a rise in traffic, which in turn has worsened navigation conditions. The geopolitical risk of conflict that would cease traffic is minimal, but that of obstruction due to new accidents has to be taken under consideration.
Gibraltar does not appear at risk. Its territory in the Iberian Peninsula is under British jurisdiction since it was ceded by Spain in 1713 as part of the Treaty of Utrecht. Some basic questions with regards to its administration have remained unresolved, but these should not negatively affect bilateral relations or traffic in any significant way.
However, in 2013 some tensions between Spain and the United Kingdom emerged. This happened following the Spanish government’s announcement of its intention to levy a tax on the passage of every vessel going through the strait. Furthermore, Spain has occasionally threatened to close its airspace without notifying the UK. This was most likely a response to the UK’s initiative to create an artificial maritime barrier to limit fishing by Spanish boats in those waters.
These are only some of the factors affecting the strategic role of maritime straits in global markets and politics. They cannot be substituted, and as such are fundamental for global markets. However, their vulnerability renders them strategically and economically fragile.
Aldo Premoli is a co-founder of Mediterraneo, Sicilia, Europa. MSE is a non-profit organization working to address issues related to migration, integration, and political economics. Through its work, MSE tries to raise awareness of these issues while promoting socially and economically sustainable policies of inclusion and economic development in the Mediterranean and in Europe.