Around 90% of world trade is carried by the international shipping industry.
Without shipping the import and export of goods on the scale necessary for the modern world would not be possible.
There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality.
Thousands of ships transit the south china sea daily, connecting markets and goods in East Asia with the Middle East and Europe. Total annual trade through the South China Sea amounts to $5.3 trillion, with U.S. trade accounting for $1.2 trillion.
A third of the world’s liquefied natural gas passes through the Straits of Malacca and into the South China Sea, much of it bound for Japan and South Korea.
Tensions in the South China Sea have grown in recent years as China has built artificial islands on reefs and atolls it occupies, triggering alarm from smaller neighbors and prompting the U.S. to send warships through the area to assert freedom of navigation. Beijing has accused Washington of using the smaller claimants to thwart Chinese claims of sovereignty.
Circumnavigating the sea to avoid conflict would drive up shipping costs, and the industry has expressed concern that insurance companies could respond to the uncertainty by raising rates.
“Given the current challenging state of the shipping/maritime industry globally, any increase in insurance will exacerbate an already difficult time for shipping companies,” said Teresa Lloyd, chief executive officer at Maritime Industry Australia Ltd., which represents Australia’s shipping, ports and maritime service sectors.
A disruption to the many ships carrying Australian export cargo through the sea could have an even greater impact on the country’s resource sector, she said.
In the wake of the ruling, several firms that cover the maritime insurance sector said they didn’t have immediate plans to raise rates. “We have taken notice of the decision reached by an international tribunal, but we see no direct impact for us at the moment,” said Michael Hauer, head of marine in Asia for Munich Re, a reinsurer for the logistic and shipping industry.
The international tribunal ruled that China’s claims of historic rights over some 90% of the resource-rich waters aren’t recognized under international law. It also said its occupation of several islets in the Spratly Island chain doesn’t entitle Beijing to claim an exclusive economic zone around them.
A long-term escalation in tensions “is actually a lose-lose outcome for Asia overall,” said Rob Subbaraman, a chief economist for Asia ex-Japan at Nomura. “Because the region is so integrated…it would be negative for all countries that are linked to this very tight web of trade and investment.”
Companies have learned to live with uncertainty in the South China Sea.
The Philippines brought the case in 2013 and so far shipping and insurance firms haven’t built the uncertainty into their rates, said Amarjit Singh, a senior analyst for the Asia-Pacific at IHS Markit in London.
“It’s difficult to see how the situation could descend such that the Chinese feel the need to do something that could impede shipping or trade flows,” he said.
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Source: The Wall Street Journal
