Strategic Maritime Passages

Strategic Maritime Passages Authors: Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom 1. Global Maritime Routes and Chokepoints Maritime transportation is the dominant purveyor of international freight distribution and evolves over a global maritime space. This space has its own constrains such as the profile of continental masses and the imperatives it creates in terms of detours and passages. Maritime routes are spaces of a few kilometers wide trying to avoid the discontinuities of land transport. They are a function of obligatory points of passage, which are almost all strategic places, physical constraints such coasts, winds, marine currents, depth, reefs, or ice and political boundaries where sovereignty may impede circulation. The majority of the maritime circulation takes place along coasts and three continents have limited fluvial trade (Africa, Australia and Asia; except China). International maritime routes are thus forced to pass through specific locations corresponding to passages, capes and straits. These routes are generally located between major industrial regions such as Western Europe, North America and East Asia where an active system of commercial containerized trade is in place. The importance of these large manufacturing regions and their consumption markets are structuring exchanges of semi-finished and finished goods. Also, major routes involve flows of raw materials, namely minerals, grains, some food products (coffee, cocoa and sugar), and most importantly petroleum. The location of strategic oil and mineral resources shapes maritime routes for bulks since they represent the most transported commodities. For instance, over 30 million barrels per day are being shipped around the world. The most important strategic maritime passages are known as chokepoints (or bottlenecks) due to:Changes in the technical and operational characteristics of transoceanic canals and passages can have substantial impacts on global trade patterns. The Panama Canal, the Suez Canal, the Strait of Malacca and the Strait of Hormuz account for the world's four most important strategic maritime passages in part because of the chokepoints they impose on global freight circulation and in part because of the economic activities and resources they grant more efficient access to. Their continuous availability for global maritime circulation is challenging dominantly because the global trade system is highly reliant on their use. Yet, they have shaped global trade with the ongoing setting of rings of circulation, notably in the northern hemisphere. In addition to the transoceanic canals, "dry canals" have also been constructed or under consideration. They are called dry canals because they replicate the role of regular canals, implying that they are relatively short overland corridors of rail, road and pipeline infrastructures connecting two ports where the cargo is transshipped. Several dry canals started as portage routes to be either discontinued as they lost their capability to compete, while others were complemented with a canal, such as for Panama. The main disadvantage of dry canals is the load break at both end, which adds costs and delays, as well as limited economies of scale on the overland route. Still, they represent routing options that can incite national imports and exports and the development of logistical activities. Such imprint on regional development is much less evident in canals, since they are simply points of passage. 2. The Panama Canal The Panama Canal joins the Atlantic and Pacific oceans across the Isthmus of Panama, running from Cristobal on Limon Bay, an arm of the Caribbean Sea, to Balboa, on the Gulf of Panama. Its operational characteristics involve a length of 82 kilometers, a depth of 12.5 meters (39.5 feet), a width of 32 meters (106 feet) and a length of 294 meters (965 feet). Its construction ranks as one of the greatest engineering works of all time as it prevents a long detour around South America, thus supporting the maritime flows of world trade. The Panama Canal is of strategic importance to the United States as it enables to link the East and the West coast more quickly, saving about 13,000 km (from 21,000 km to 8,000 km) for a maritime journey. It is composed of three main elements, the Gatun Locks (Atlantic Ocean access) the Gaillard Cut (continental divide) and the Miraflores / Pedro Miguel Locks (Pacific Ocean access). Interest in establishing a short route between the Atlantic and Pacific began with the exploration of Central America in the early 16th century. In 1534, the Spanish surveyed the Panama region in order to construct a canal, but the project never came into existence due to acute technical constraints. Overland portage routes were used instead, initially as paths through the isthmus, but in 1855 the completion of Panama Railway provided a faster and higher capacity link. The United States became interested in building a canal when gold was discovered in California in 1848. A possible path through Nicaragua was also surveyed. However, in 1878 the French Geographical Society of Paris signed a treaty with Columbia (then the owner of the Province of Panama) for the construction of a canal. From 1879 to 1899, the French Canal Company undertook construction but the project failed due mainly to financial problems, tropical diseases (an estimate of 25,000 workers died) and the technical difficulties of trying to build a sea level canal. The Spanish-American war of 1898 gave an incentive to build a canal due to the long repositioning of American ships between the Atlantic and Pacific oceans. It is only in the twentieth century that the project would become a reality. Under the rule of Colombia the United States was unsuccessful in attempts to plan a canal. However, in 1903 the Panamanian revolution, supported by the United States, resulted in the independence of Panama. In that same year, the United States and the new state of Panama signed the Hay-Bunau-Varilla Treaty by which the United States guaranteed the independence of Panama and secured a perpetual lease on a 16-km (10 miles) strip for the canal, over which the United States had complete sovereignty. Panama in return got a monetary compensation of $10 million and an inflation-indexed annual compensation. The Panama Canal was constructed between 1904 and 1914 by American engineers and has a total length of 82 km at a cost of $387 million (including the $10 million compensation to Panama and $40 million to purchase the previous project from the French Canal Company). In 1906, President Theodore Roosevelt, mainly credited for the achievement, put the construction of the canal under the authority of the U.S. Army Corps of Engineers. The Soo Locks linking Lake Huron to Lake Superior, which at the time were the most heavily used in the world, became the engineering template for Panama's locks. The construction of Gatun Dam enabled the creation of an artificial lake (Lake Gatun), which reduced the need for excavation as well a providing a large reservoir of water to supply the locks. A total of 70,000 people worked on the project and about 5,600 died in the process, mainly because of tropical diseases. The work was completed in 1914 and involved excavating 143 million cubic meters of earth and sanitizing the entire canal area, which was infested with mosquitoes that spread yellow fever and malaria. In its 96 years of existence since its completion in 1914 (as of 2010), more than one million vessels transited the canal, carrying 8.1 billion tons of cargo. About 13,000 ships transit the canal every year, with an average of 35 ships per day. However, the canal has the optimal capacity to handle 50 ships per day. Using the canal requires in average transit time of about 16.5 hours if the passage has been reserved in advance. With no reservations, the transit takes an average of 35 hours due to the additional time spent waiting for a transit slot. The average crossing time is about 23 hours, of which about 10.5 hours are accounted for canal transit time (from the Colon to Balboa). Containers, grains and petroleum account for the dominant share of the cargo transited. The introduction of super-tankers at the beginning of the 1950s forced the reconsideration of its strategic importance as economies of scale in petroleum shipping are limited by the size of the canal. It is synonymous of a standard in maritime transport related to capacity, the Panamax standard, which equals to 65,000 deadweight tons, a draft of 12 meters and a capacity of about 4,500 TEUs depending on the load configuration. The canal handles about 5% of the global seaborne trade and about 12% of the American international seaborne trade. Under the control of the United States until 1979, its administration was entrusted to the State of Panama by the Panama Canal Treaty of 1977. In December 1999, the canal was reverted to Panama under the jurisdiction of the Panama Canal Authority. The authority generates revenue by collecting tolls on all ships crossing the canal and is responsible for the operation and maintenance of the facility. A loaded ship pays about $2.57 per net ton and the average toll is about $45,000. For container ships the toll (as of 2011) is $74 per TEU of capacity on laden containers and $65.60 per TEU of capacity on ships with empty containers. In 2008, $1.32 billion in tolls were collected, of which 54% were generated by container shipping. In 1999, the Hong Kong terminal operator, Hutchison Port Holdings (HPH), took control through a concession of the operation of port terminals on both the Atlantic (Port of Cristobal) and Pacific (Port of Balboa) sides of the Canal with a 25 years lease. This raised concerns within the American government as it was perceived that the control of the canal was falling into foreign interests. The rail line between the Atlantic and Pacific sides was reopened in 2002 to handle the growing containerized traffic. The Panama Canal Railway Company (concession to KCS and Mi-Jack Products), offers an alternative to the size limitations of the canal and supports transshipment activities between the Atlantic and the Pacific sides through doublestack services. The same rationale applies to oil circulation with the trans-panama pipeline that resumed its operations in 2003, but the additional capacity this pipeline conveys is only about 1 Mb/d. In spite of being close to a century old, the Panama Canal remains a critical bottleneck in global trade. The continuous growth of global trade since the 1990s has placed additional pressures on the Panama Canal to handle a growing number of ships in a timely and predictable manner. This raised concerns that the existing canal would reach capacity by the second decade of the 21st century. Because of these capacity limits, many shipping companies have changed the configuration of their routes. This became increasingly apparent as a growing share of the global containership fleet reached a size beyond the capacity of the Panama Canal, which came to be known as "post-panamax" containerships. Through economies of scale, they offer significant operational costs advantages that cannot be exploited by the existing canal. The increasing usage of those ships along the Pacific Asia / Suez Canal / Mediterranean routes as well as the development of the North American rail landbrige have created a substantial competition to the canal as an intermediate location in global maritime shipping. There are thus a range of alternatives to the Panama Canal trade routes, with the North American landbridges being the most salient. Yet, concerns about the reliability of the landbridge connection incited the setting of "all-water routes" linking directly Pacific Asia and the American East Coast, particularly in light of the booming China-United States trade relation. A decision to expand the Panama Canal was reached in 2006 by the Panamanian government. The expansion is a 5.25 billion US dollars project that involves building a new set of locks on both the Atlantic and Pacific sides of the canal to support a depth of 60 feet, a width of 190 feet and a length of 1,400 feet, which would accommodate ships up to 12,000 TEU depending on their load configuration. The dredging of access channels as well as the widening of several sections of the existing canal will also be required. This would allow Aframax and Suezmax vessels to pass through the canal, thus permitting new opportunities for container shipping services such as the re-emergence of round-the-world services. Essentially, a new containership class will be created to add to the existing Panamax ship class. It will be dubbed New Panamax (or Neo Panamax). The new locks will complement the existing lock systems, creating a two tier service; one for the very large ships and the other for the Panamax, or smaller, ships. The outcome would allow about 12 ships per day in the new lock system to be added to the existing capacity of about 35 ships per day in the existing locks. It is expected that the new infrastructures will become online by 2015, after some delays (initially, the expansion was expected to be completed for 2014). However, this expansion is taking place in an environment of notable commercial changes such a revision of sourcing strategies and the possibility of a canal in Nicaragua. As a global intermediary location, Panama is shifting from being a point of transit towards being a logistics cluster. 3. The Suez Canal The Suez Canal is an artificial waterway of about 190 km in length running across the Isthmus of Suez in northeastern Egypt which connects the Mediterranean Sea with the Gulf of Suez, an arm of the Red Sea. It has no locks, because the Mediterranean Sea and the Gulf of Suez have roughly the same water level and is thus the world's longest canal without locks. It acts as a shortcut for ships between both European and American ports and ports located in southern Asia, eastern Africa, and Oceania. Because of obvious geographical considerations, the maritime route from Europe to the Indian and Pacific oceans must contour the Cape of Good Hope at the southernmost point of the African continent. The minimum width of the channel is 60 meters and ships of 18 meters (62 feet) draft can make the transit. The canal can accommodate ships as large as 220,000 deadweight tons fully loaded. The first canal between the Nile River delta and the Red Sea was excavated about the 13th century BC. Its purpose was to expand trade between the Mediterranean and the Middle East, which became significant by 100 AD. During the next 1,000 years, the canal was neglected, but at different times Egyptian and Roman rulers modified it. Restoration efforts were abandoned in the 8th century AD as the Roman Empire collapsed and Mediterranean trade dropped. Transshipping the goods across the Isthmus was judged more profitable than supporting the maintenance of a canal. This situation endured until the nineteen century when powerful maritime interests saw the need to make a Mediterranean - Red Sea connection a reality again. The Suez Canal was constructed between 1859 and 1869 by French and Egyptians interests with a cost of about 100 million dollars. The opening of the Suez Canal in 1869 brought forward a new era of European influence in Pacific Asia. The journey from Asia to Europe was considerably reduced by saving 6,500 km from the circum African route. In 1874, Great Britain bought the shares of the Suez Canal Company and became its sole owner. According to the Convention of Constantinople signed in 1888, the canal was to be open to vessels of all nations in time of peace or in war. However, Great Britain claimed the need to control the area to maintain its maritime power and colonial interests (namely in South Asia). In 1936, it acquired the right to maintain defense forces along the Suez Canal, which turned out to be of strategic importance during World War II to uphold Asia-Europe supply routes for the Allies. The second half of the 20th century saw renewed geopolitical instability in the region with the end of colonialism and the emergence of Middle Eastern nationalisms. In 1954 Egypt and Great Britain signed an agreement that superseded the 1936 treaty and provided for the gradual withdrawal of all British troops from the zone. All the British troops were gone by June 1956 as the canal was nationalized by Egypt. This triggered problems with Israel, as Israeli ships were not permitted to cross the canal. This threat was also extended to France and Britain, the former owners of the canal because they refused to help finance the Aswan High Dam project, as initially promised. Israel, France and Britain thus invaded Egypt in 1956. Egypt responded by sinking ships in the canal effectively closing it between 1956 and 1957. An agreement about the usage of the canal was then reached. However, geopolitical problems persisted as tensions between Israel and Arab nations increased in the 1960s. The Six Days War between Israel and Egypt and the invasion of the Sinai Peninsula by Israel caused the closure of the Suez Canal between 1967 and 1975. This event significantly destabilized international transportation and favored the development of ever larger tankers to use the long circum Africa route. The canal was finally re-opened in 1975 as Egypt agreed to let Israel use it. Significant improvements were made between 1976 and 1980, mainly the widening of the canal to accommodate very large crude carriers (VLCC) of about 200,000 tons supporting the oil trade between Europe and the Middle East. The minimum width of the channel is 60 meters and ships of up to 16 meters (58 feet) of draft can make the transit. This means that ultra large crude carriers (ULCC; tankers of more than 300,000 tons) cannot pass through the Canal when fully loaded. A common practice is to unload parts of Mediterranean bound ships and use Sumed pipeline. With additional deepening and widening projects, the depth of the canal has reached 22.5 meters in 2001. The canal has the capacity to accommodate up to 25,000 ships per year (about 78 per day), but handles about 20,000, on average 55 ships per day, which roughly account for 15% of the global maritime trade. Since the canal can only handle unidirectional traffic, crossings must be organized into convoys of about 10 to 15 ships. Three convoys per day, two southbound and one northbound, are organized. The transit time is about 10 hours northbound and 12 hours southbound. Missing a convoy involves supplementary delays to the point that many maritime shipping companies (particularly for containers) will skip a port call to insure that their ships arrive on time at the Suez Canal to be part of a specific convoy. A rail line also runs parallel to the canal. The transit rates are established by the Suez Canal Authority (SCA). They are computed to keep the canal transit fees attractive to shippers. In fiscal year 2008, Egypt earned USD 5 billion in canal fees making it Egypt’s third largest revenue generator after tourism and remittances from expatriate workers. Container ships account for just under half of the Canal’s traffic and a slightly higher percentage of its net tonnage and revenues. The average canal transit fee per TEU (at 90% vessel utilization) amounts to 102 USD for a vessel of 1000 TEU down to 56 USD for the largest container vessels. In early 2009, a number of ship owners started to boycott the Suez Canal because of the high transit fees. There are thus a number of alternatives to the Suez Canal. 4. The Strait of Malacca The Strait of Malacca is one of the most important strategic passages of the World because it supports the bulk of the maritime trade between Europe and Pacific Asia, which accounts for 50,000 ships per year. About 30% of the world’s trade and 80% of Japan’s, South Korea’s and Taiwan’s imports of petroleum transits through the strait, which involved approximately 11.7 Mb/d in 2004. It is the main passage between the Pacific and the Indian oceans with the strait of Sunda (Indonesia) being the closest alternative. It measures about 800 km in length, has a width between 50 and 320 km (2.5 km at its narrowest point) and a minimal channel depth of 23 meters (about 70 feet). It represents the longest strait in the world used for international navigation and can be transited in about 20 hours. Traditionally, the Strait was an important passage point between the Chinese and the Indian worlds and was controlled at different points in time by Javanese and Malaysian kingdoms. From the 14th century, the region came under the control of Arab merchants who established several fortified trading towns, Malacca being the most important commercial center in Southeast Asia. Again, the control of the trade route shifted as the era of European expansion began in the 16th century. In 1511, Malacca fell to the Portuguese and this event marked the beginning of European control over the Strait. In 1867, England took control of the passage with Singapore as a main harbor and other important centers such as Malacca and Penang, forming the Strait Settlements. This control lasted until the Second World War and the independence of Malaysia in 1957. As the Pacific trade increased considerably after the Second World War, so did the importance of the passage. Singapore, located at the southern end of the Strait of Malacca is one of the most important ports in the world and a major oil refining center. One of the main problems about the Strait of Malacca is that at some points it requires dredging, since it is barely deep enough to accommodate ships of about 300,000 deadweight tons. The Strait being between Malaysia, Indonesia and Singapore, an agreement is difficult to reach about how the dredging costs should be shared and how fees for its usage should be levied. Political stability and piracy along are also major issues for the safety of maritime circulation, especially on the Indonesian side with the province of Aceh in a state a civil unrest. The Strait of Malacca ends up in the South China Sea, another extremely important shipping lane and a region subject to contention since oil and natural gas resources are present. The Spartly and Paracel groups of islands are claimed in whole or in part by China, Vietnam, Malaysia, Indonesia, Brunei and the Philippines. The region has proven oil reserves estimated at about 7.0 Bb with oil production accounting for 2.5 Mb/d. With the substantial economic growth taking place in the region large flows of oil, liquefied natural gas and other raw materials (iron ore, coal) are transiting towards East Asia. About 25% of the global shipping fleet transits through the region each year, underlining the importance of the South China Sea as an extension of the Malacca chokepoint. 5. The Strait of Hormuz The Strait of Hormuz forms a strategic link between the oil fields of the Persian Gulf, which is a maritime dead-end, the Gulf of Oman and the Indian Ocean. It has a width between 48 and 80 km, but navigation is limited to two 3 km wide channels, each exclusively used for inbound or outbound traffic. Circulation in and out of the Persian Gulf is thus highly constrained, namely because the sizable amount of tanker and containership traffic makes navigation difficult along the narrow channels. In addition, islands that insure the control of the strait are contested by Iran and the United Arab Emirates. The security of the strait has been often compromised and its commercial usage has been the object of contentions. Between 1984 and 1987 a “Tanker War” took place between Iran and Iraq, where each belligerent (Iran-Iraq War of 1980-1988) began firing on tankers, even neutrals, bound for their respective ports. Shipping in the Persian Gulf dropped by 25%, forcing the intervention of the United States to secure the oil shipping lanes. About 88% of all the petroleum exported from the Persian Gulf transits through the Strait of Hormuz, bound to Asia, Western Europe and the United States. Its importance for global oil circulation cannot be overstated. For instance, 75% of all Japanese oil imports transit through the strait. There are thus very few alternative outlets to oil exports if the traffic of about 14 million barrels per day going through Hormuz was compromised. While the Persian Gulf has conventionally been centered on oil production and distribution, the growth of container shipping has also expanded its commercial importance. For instance, Dubai ranked in 2010 as the world's 9th largest container port with a traffic above 11.6 million TEU and can only be accessed through the Strait of Hormuz. It has become a major transshipment hub linking major Asian, Middle Eastern and East African trade routes. Consequently, compromising circulation through the Strait of Hormuz would impair global oil trade as well as commercial trade along Europe / Asia routes. 6. Other Important Passages