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ITE Transport and Logistics

Shipping resilient in South China Sea

Tension over disputed ownership of vast areas in the South China Sea, one of the busiest shipping lanes in the world, has heightened this year. So far, commercial shipping has avoided getting caught in the political crossfire, but how long can it continue to count on safe passage?
Comprising a stretch of roughly 3.5 million square kilometres in the Pacific Ocean, the South China Sea is home to hundreds of islands including the hotly contended Spratly and Paracel Islands. It’s a vital link between the Western Pacific and Indian Ocean and seaborne trade valued at US$5.3 trillion moves through the sea every year.
Citing decades-old “historical” maps and documents in its possession, China has claimed almost all of the South China Sea. But other coastal states such as Vietnam, Indonesia, Malaysia, Taiwan, Philippines and Brunei have staked their own, overlapping claims. These nations have turned to Russia as a mediator for the disagreement.
At an informal meeting held in Moscow in April, the Philippines Undersecretary of Defense Natalio C Ecarma III told Association of South East Asia Nations defense ministers that Russia, with its global stature and wide experience in conflict prevention and management, could significantly contribute to the maintenance of peace and stability in the Asia Pacific.
Oil Reserves A Big Lure
The South China Sea is estimated to have about 11 billion barrels of oil and 5 trillion cubic metres of natural gas in proven and probable reserves, according to the U.S. Energy Information Administration Oil and Gas Analysis Report on the South China Sea. These impressive oil and gas reserves put the dispute on the global agenda, not least for the U.S. and its allies in the region, but also for energy-hungry China.
The U.S. has publicly opposed the reclamation projects undertaken by China in the South China Sea, where the latter has conducted its first test flights on a newly built runway in the Spratly Islands, drawing protests from Vietnam and the Philippines, which have claimed three and eight islands, respectively.
Refuting the U.S. allegations, Chinese Foreign Minister Wang Yi, who was in Washington three days later, said that China and the U.S. shared common interests regarding the South China Sea, and both sides should maintain peace and stability in the region by resolving disputes amicably.
“There have not been any problems with regard to freedom of navigation in the South China Sea, and many shipowners and insurers have said that the insurance premium has not gone up. No commercial vessel has encountered any problem in the area of freedom of navigation,” Wang Yi said.
He reiterated the same on the sidelines of the Twelfth National People’s Congress held in March, asserting that the Nansha Islands were China’s integral territory. “China is the largest country bordering the South China Sea, so we hope, more than any other country, to uphold the freedom of navigation. Thanks to the concerted efforts of China and other regional countries, it is one of the freest and safest sea lanes in the world,” he said.

The strong military presence from China and the U.S. has so far not deterred shipping companies from navigating in the waterways in the South China Sea.
Arthur Bowring, Hong Kong Ship Owners’ Association managing director, confirmed that despite tensions, there has been no restriction on merchant ships passing through the area and ships continued to trade through the area without issue. “There is no need for peacekeeping forces, because there is no war or other danger,” Bowring said.
According to him, the South China Sea development is a political situation, one that has not deteriorated, and is not expected to deteriorate, into any kind of military conflict. “Due to the importance of maritime trade to the region, it is extremely unlikely to deteriorate to the extent that maritime trade is affected,” he said.
However, Bowring said: “There are rumors that China-bound ships could be attacked to put pressure on China, but if this happened, then it is likely that the situation would deteriorate very quickly, in ways that neither the countries concerned nor China would want.”
The claimant nations are aware that any disturbance to the commercial shipping in the South China Sea that forces a shift of cargo onto alternate shipping routes would financially cripple shippers, who will have to shell out millions of additional dollars for the privilege.
Military Presence A Reassurance
Greg Austin, visiting professor at the Australian Centre for Cyber Security, further discounted fears, pointing out that commercial shipping can pass through the South China Sea – which is twice as big as the Gulf of Mexico and 50 percent bigger than the Mediterranean Sea – without ever seeing a naval ship or the disputed coral reefs and small islands.
Since China and the U.S. have committed to protecting international commercial shipping, the presence of naval forces from both sides adds to the security offered to project cargo carriers in the sea. “Even if military clashes take place over the disputed islands, it will have zero impact on commercial shipping,” Austin said.
Austin also dismissed apprehensions that Australia’s trade with China, worth more than US$78 billion each year, according to statistics from the Australian Trade Commission, might be affected. China is the largest market for Australia accounting for 37 percent of its exports followed by Japan.
“The Australian government is using this exaggerated and invented threat as part of an alliance campaign against China, to support the U.S. rebalancing strategy in the region,” he said.
The South China Sea is also important to the Association of South East Asia Nations, or ASEAN, and its relationship with China. The latter has been ASEAN’s largest trading partner since 2009, while ASEAN has remained China’s third-largest trading partner since 2011.
Two-way trade reached US$366.5 billion in 2014, accounting for 14.5 percent of ASEAN’s total trade. ASEAN received US$8.9 billion in foreign direct investment inflows from China, accounting for 7.1 percent of total inflows to ASEAN in the same year.
Khalid Moinuddin Hashim, managing director of Bangkok-based shipowner Precious Shipping, said that the geopolitical tensions in the South China Sea are being stirred by big-power politics but have had zero impact on commercial shipping. To date, there has been no slowdown in the movement of cargoes because of the tension in the South China Sea.
“One should keep in mind that if there was any form of real tension concerning the safety of merchant ships traversing the South China Sea, the underwriters sitting at Lloyds in London would have demanded an extra war risk premium. That did not happen because there is no real ëtension’ for shipping cargoes safely via the South China Sea,” Hashim said.
Germany-based Hapag-Lloyd also moves its cargo through the South China Sea and confirmed that it had yet to see any impact on commercial shipping. Rainer Horn, Hapag-Lloyd director public relations, said: “We have not experienced anything negative yet. However, we are monitoring closely local disputes as they can have an effect on trade. The same holds true with regard to the safety of our ships, which we have to ensure at all times.

A version of this article originally appeared in the BreakBulk Magazine. Breakbulk Magazine’s mission is to be the global thought leader providing breakbulk & project cargo logistics intelligence (news, trending, data & metrics in print and online) that helps logisticians worldwide move their breakbulk and project cargo more efficiently. 


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