The last five years has seen significant, continued disruption to global trade. In a decade that started with the COVID-19 pandemic, global trade has had to navigate through a series of continued crises. These crises have ranged from the supply chain logjams caused by the pandemic, through to war in Europe and the Middle East and the introduction of tariffs.
Yet, the current crisis in the Middle East and the disruption caused by the closure of the Strait of Hormuz and the attacks in the Bab-El Mandeb strait, show the vulnerability of global trade to major chokepoints.
The closure of these major business interruption hotspots can have a significant impact on the global economy because they restrict the supply of key commodities such as crude oil.
These major economic bottlenecks include not just the Strait of Hormuz and Bab-El Mandeb, but also encompass the Straits of Malacca, Taiwan, Gibraltar, Suez Canal, the Panama Canal and the Mozambique Channel.
Annual Trade by Value through each trade route
Typical analysis of global pressure points highlight the annual volume of container traffic through each trade route, so therefore it is no surprise to see the coverage around the closure of the Strait of Hormuz.
Yet, our analysis has focused not on the volume but rather on the value of annual trade through each of these chokepoints. By adopting this new measurement, we see a new picture emerging.
The most valuable trade route is not the Strait of Hormuz but the Malacca Strait, a vital gateway linking global trade to East Asia. In a sign of shifting trade from west to east, nearly 50% of all global shipped trade runs through the Straits of Malacca and Taiwan combined.
The Strait of Gibraltar, which connects the Mediterranean Sea and the Atlantic Ocean, carried more annual trade by value than the Suez Canal and Straits of Hormuz and Bab-El Mandeb combined. Yet, while the former has been firmly in the public consciousness for the last few years, the latter has barely merited a mention.
Annual commodity flow through each trade route
In a detailed breakdown of annual commodity flows through each trade route, crude oil is the main commodity that is shipped through six out of the eight main trade routes.
Interestingly, more crude oil is shipped through the Malacca Strait than Hormuz, Bab El-Mandeb and Suez combined. The Strait of Malacca is of critical and strategic importance to China, because of the reliance on oil exports, with the issue referred to as, “The Malacca Dilemma”.
However, while crude oil trade by value through Hormuz only represents only 14% of all global crude oil trade by value, it still represents a large chunk of trade through the strait at 26%.
Yet, many experts are saying disruption such as Hormuz can be referred to as an “economic chokepoint”, whereby the damage of lack of commodity such as crude oil can be managed through alternative means.
Many are referring to concerns around “innovation chokepoints”, where limited access to commodities such as rare earths or integrated circuit boards can put in jeopardy a country’s potential innovation.
More than 13% of the annual trade passing through the Taiwan Strait is in integrated circuit boards (ICBs). Those ICB shipments represent 28% of global ICB exports.
Monitoring Chokepoints
For many, it is tempting to describe the current focus on global chokepoints as a passing fad that will be replaced by another concern in a year’s time, but that would be misguided. The disruption created by the blockade of the Strait of Hormuz has shown that monitoring global choke points needs to be a priority for marine underwriters.
Such an approach would help them to effectively calculate and understand their true exposure from future events.
