Fragile Goods: The end of shipping?

Singapore is a great vantage point for the passage of global trade. 

Linking the Strait of Malacca to the South China Sea, its strategic importance is only rivalled by the Suez Canal. Most freight headed to or from East Asia passes by Singapore’s coastline. The world’s second and third largest economies – China and Japan – rely on it.  

Shanghai pips the city state in port size but few other global centres are surrounded by such immense maritime traffic. 2,000 vessels pass through the 12 miles separating Singapore and Indonesia’s Riau Archipelago every day. The shipping lane dominates coastal views and provides a different kind of charm at Sentosa’s popular beach clubs.  

Best known internationally for hosting the Trump-Kim summit in 2018, Sentosa is a small Singaporean island a couple of hundred metres from the mainland. Developed as a slightly naff but popular resort in the 1980s, it’s now home to exclusive golf clubs, wealthy residential enclaves and local influencers. 

The quarter-mile long vessels are normally an eyesore for the latter; something to be edited out of Instagram stories at Tanjong Beach Club. But now shipping is front-page news, there is an opening for the maritime Francois Bourgeois to emerge. 

I see the App store’s latest hit, MarineTraffic, open on more phones. The tool shows real-time positions of ships worldwide. The red, yellow and blue arrows indicate where the behemoths just a short swim away are off to. I spotted a bulk carrier going to Lianyungang in China, a heavy load carrier bound for Miri in Borneo and a crude oil tanker heading for Cape Town.

Supply chain disruption

It’s a lot of stuff going to a lot of different places. And we take its swift and safe arrival for granted. In the excellent maritime true-crime thriller Dead in the Water, Matthew Campbell and Kit Chellel describe the industry as responsible for “virtually every product the modern world desires.” 

Campbell and Chellel go on to tell us it accounts for “over 80 percent of all worldwide trade in physical merchandise.” The world’s biggest companies are all reliant on this global carousel, from Walmart’s consumer goods to Aramco’s gas to Apple’s electronics. You can source anything you need from anywhere in the world reliably, efficiently and incredibly inexpensively. It costs just $2 to ship a plasma television set from China to America. 

But that ease and convenience is threatened by recent Red Sea chaos. Houthi attacks on ships passing Yemen’s coastline on their way to the Suez Canal are causing mass diversions. Half of its regular traffic is now avoiding a route responsible for around 15 percent of global trade. What first appeared as a few ragtag pirate attacks has turned into something much more substantial and sophisticated. The CEO of the shipping giant Hapag-Lloyd thinks it could last another six months. 

With no resolution in sight, shipping costs are soaring. But why does this bottleneck at the junction between Asia and Europe impact trade so dramatically?

rising costs

In its simplest form, global shipping has 2 counterparties. You have the company paying for the goods on the ship and the company operating the ship. The company with the goods wants to pay as little as possible and the ship owner wants to make as much as possible. When supply chains are disrupted, ship owners charge more to meet increasing costs. For container shipping, which moves things like consumer goods, industrial products and pharmaceuticals, there is a market rate for a 40 foot container. This has kept rising since the first Houthi attacks and routes like Shanghai to Rotterdam are now 44 percent more expensive.  

Eventually the consumer has to pick up the tab for these extra costs. Covid had a similar effect when a lack of ships and stringent crew regulations saw rates similar to now. But just as Covid created a convenient foil for companies to excuse incompetence and rising prices, some accuse shipping companies of not wanting to let a good crisis go to waste. I spoke to industry players to find out what costs are real and what is sentiment.     


Joe Frantas is an American mariner with a popular YouTube channel: @JoeFrantas. He is a contractor who has worked for different shipping companies carrying various freights. He told me container ships are bearing the brunt of current friction. They are more risk averse and more likely to take the longer route around the Cape of Good Hope. This can add up to 2 weeks to a vessel’s journey time. 

Running costs rise the longer the ship is at sea. And shipowners also bear an opportunity cost. An extra 2 weeks on a journey means forsaking another. Frantas told me it also affects the usually seamless drop offs and pick up at different ports. “Ships are usually lined up a week behind each other so if one gets delayed, they don’t reach the next place in time to drop off empty containers.” It’s like bed blockers in a hospital. A ship’s capacity is wasted and it can’t take on valuable freight that needs to move.


But some exporters say recent price increases are totally out of proportion with increasing costs. Marco Castelli is an Italian business owner in Shanghai exporting textiles to Europe. He believes he is generous in his estimate that it costs a ship an extra $4m to go from East Asia to Europe around southern Africa. This accounts for an additional $1.5m each for insurance premiums, fuel and the longer hire. He deducts $500k for the savings on the Suez Canal fee. On an average ship with 10,000 containers, this should translate to $400 more per container. But instead costs have risen by around $2,500 per container. So Castelli thinks shipping firms are making an extra $25m per trip when they should be making $4m.


Others in the industry agree that these firms are taking advantage of the chaos. Shipbrokers are the intermediaries matching shipowners with those transporting goods. I spoke to one at a leading international firm in London. “Any volatility is generally good for owners.” He told me it changed attitudes in the industry. “The shipping market is massively driven by sentiment. Owners will immediately get their backs up a bit more and the market can quite easily turn, even for voyages that aren’t particularly relevant to what’s going on.” The general impression that shipping has got more dangerous acts like an intangible asset to shipping firms, regardless of the actual change in the fundamentals.

Much of this shipbroker’s day to day work consists of finding shipowners still willing to do the route. He works in oil and agrees with Frantas that the risk appetite is higher in this sector. With producers generally in more volatile regions, transporters develop a thicker skin about these disturbances. He recently found an owner happy (at a lucrative premium) to take a shipment from Basra into the Mediterranean, a route that navigates both the Persian Gulf and Red Sea. However the charterer backed out, saying it was too dangerous.

risk appetite

Smaller family enterprises are often his best bet for the Suez run. Fortunately these are plentiful in Greece. Only very recently overtaken by China as the world’s largest shipowner, the country has an outsized influence on maritime trade. Its owners have been particularly gung-ho over the last couple of months. The shipbroker talks of their willingness to pick up deals turned down by larger public companies like Teekay or Nordic American Tankers. 

His anecdotal evidence is corroborated by a recent who’s who of tankers in the Red Sea. Twitter’s shipping expert Ed Finley-Richardson shows half of these are Greek. He also reports on one particularly bold voyage of a Greek owner with a “taste for gambling”. The VLCC Princess Vanya is heading from China to Saudi Arabia to pick up a cargo and return it to Japan. The journey will involve spending over a week in the world’s most dangerous waters. 

trade finds a way

Our mariner Joe Frantas has done the Red Sea route before, though not since recent trouble broke out. He tells me they would pick up armed guards in Greece before going through Suez and out into Arabian waters. These guards are a mandatory condition of insurance policies since Somali pirate attacks peaked in 2011. Frantas himself felt a more immediate sense of danger sailing through the Strait of Hormuz weeks after the assassination of Iranian major general Qasem Soleimani by a US airstrike in 2020. Eyes were keenly peeled for trouble as the only US ship in the Persian Gulf.  

Frantas is sanguine about the current situation. “There is always some kind of disruption somewhere. In the maritime industry, the globe is your workplace… Covid slowed everything down. Then there is always stuff in the South China Sea. There are always tensions somewhere but cargo never stops moving. Who knows how long this thing lasts? But I don’t think we will see anything too dramatic.” 

And so far, Frantas is right. While the attacks threaten to turn into a bigger US-Iran confrontation, global trade chugs on. Tesla had to shut a German factory for several days because it was waiting on parts. Marks & Spencer has warned it will delay spring clothing lines. But these are hardly catastrophic harbingers of renewed inflationary pressures and energy scarcity.   

suez’s history

We also don’t have to travel back far to see that trade survived without Suez. In March 2021, the Ever Given container ship got stuck in the Suez Canal, blocking all marine traffic. The Japanese ship became wedged across the waterway for 6 days. Ships far away enough from the chaos were rerouted around Africa but others had to sit out the jam. At its peak, almost 400 vessels were anchored in the canal waiting for the obstruction to clear. 

Those few days pale in comparison to its 8 year closure from 1967 to 1975. Egypt shut the gateway to Europe at the outset of the Six-Day War. It caused an energy shock in Europe as countries pivoted to new suppliers. But the effects were generally manageable. There was little economic or civil strife.      

the rise of asia

However, this was before the rise of Asia as a manufacturing powerhouse. Today East Asia alone accounts for half of all manufacturing supply chain steps. And this excludes the rising powerhouses of southeast Asia and India. In 1978 Japan was the only Asian nation in the world’s top ten exporters. Today there are 5 (China, Japan, Singapore, South Korea and India). China’s rise is the most significant, now accounting for 15 percent of global exports. 

We are now much more dependent on inter-continental trade routes. Europe could weather the closure of Suez in the 70s because its biggest trading partners were its neighbours or the USA (and goods could still cross the Atlantic). It’s the rise of Asia and our dependence on it for semiconductors, clothing, agricultural products and much more that makes the current crisis more concerning. 

Asia’s pain

It’s also Asia that has most to lose from stunted trade. It hurts its exports but it also presents big problems for its biggest import: energy. Asia relies on the Middle East much more than Europe or energy independent America. Saudi Arabia’s top export partners are China, India, Japan and South Korea. Qatar’s and Kuwait’s are the same and, while these pickups at least avoid Yemen’s coastline, they are subject to the same danger premiums our shipbroker talked about. 

Then there is China’s widely acknowledged clandestine imports from Iran. Shipping analytics firm Vortexa estimates China bought sixty percent more oil from Iran last year compared to pre-sanction peaks. The product is carried by a so-called “dark fleet” of older tankers that switch off their transponders at Iranian ports.This relationship enables China to buy oil at a fraction of the market price.   

But now China’s support for Iran threatens to hurt its own economy. Iran is backing an unpredictable rebel group who are increasingly indiscriminate in the ships they target. Where it was originally an operation against Israeli vessels, now even some Russian ships are avoiding the Red Sea.  

decline of us naval power

China and its allies are also suffering from the uncertainty that comes with having a maniacal guerilla force perched on the world’s most important trade route. And former US Naval secretary Kenneth Braithwaite believes US abdication from its role as global policeman is to blame. “Armies win wars but navies prevent wars”, he tells me from his home in Pennsylvania. “From the Pelopensian period to the 21st century, maritime powers have always dominated world affairs.” The US navy guaranteed the security of these routes but its commitment is waning and Braithwaite believes we are witnessing the consequences.  
Braithwaite believes in displays of strength. He credits US naval presence in the South China Sea for avoiding military conflict over Taiwan. He criticises recent cuts and is wary that his former boss’ return to the presidency could further dampen US appetite to “sail into harm’s way.” Braithwaite predicts further “attacks of opportunity” if this is the case.

risk vs reliability

Shipping has never been without risk. It’s why such a huge insurance industry exists around maritime trade. But the industry depends on the assumption freight can travel safely from one place to another. Shipping can handle disturbances but it can’t operate under the constant threat of chaos. Without one power enforcing freedom of movement, independent actors can pursue their own disparate aims by halting traffic. 

For now, the merry go round continues. Supermarkets are packed with Singapore’s usual variety of imported goods in preparation for lunar new year celebrations. And the shipbrokers here are in a good mood. It’s been a buoyant few months’ business.  

So is our mariner right? Will cargo just keep on moving? The optimistic take is that the market adjusts to a new risk profile. Insurance premiums stay a little higher as do security costs on board. But the sentiment softens and ship owners are forced to lower prices. Others continue going the long way round but supply chains adjust accordingly and the boats benefit from slow steaming (reducing speed to cut fuel costs). 

The pessimists see the beginning of the end. Cheap shipping is no longer viable in a multipolar world where chaos reigns.

singapore as a bellwether

Singapore, often hailed as the crossroads of east and west, occupies this role more tangibly in the maritime world. The traffic on its shores serves as a gauge of the resilience of long-haul shipping. And Sentosa’s beach-goers can look out at the real-time barometer of the state of global trade.


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