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  • Writer's pictureRichard Murff

The Shipping News is Bad


GLobal Shipping

It’s being driven by the semiconductors, and not just the ones that make AI possible. South Korean exports are up 18% year over year – with US exports up 27% and exports to China up 16% from a year and a half ago.  Despite some pretty leaky US export bans on technology, this is a nice little win for the West. It’s a larger win for a key US ally sitting precariously in China’s sphere of influence – but it is inviting trouble. South Korea’s only land border is with the North – and Kim Un Jong is carrying on like the two are at war – and the rest of it juts out into the Yellow Sea, which is another one of those “Chinese lakes” that Beijing claims.


All of which would normally make a situation tense, but not hot. The spoiler is that Kim Un Jong is eyeballing that crude Houthi innovation as a power multiplier: a war on commercial shipping. It is a great play for deranged minor actors looking to make a big splash. The irony here is that the power that most benefits from free sea lanes under the US security umbrella is, in fact, North Korea’s patron, China.  But Kim is like Xi’s errant teen, completely dependent, but ultimately hard to control.


To date, it has only been pirates and other “non-state” actors that have taken shots at commercial shipping (after some minor cracks at commercial shipping in the Black Sea by Russia). Since the Houthis started their foolishness in the Red Sea, they have hijacked one ship, and damaged another that managed to go on its way. And yet for ships traveling from Asia to Europe the cost of insurance is up some 160% on the uncertainty. And Egypt have seen its receipts from Suez passage drop 50%. Piracy out of Somalia has started up again, as well as in Strait of Malacca – connecting the South China Sea to the Indian Ocean. Possibly more problematic, is that piracy is up in the Gulf of Guinea off the west coast of Africa – which is more or less laying-in-wait for those ships going around the Africa’s Cape of Good Hope to avoid the Red Sea.  

 

North Korea wading into that arena would be a gamechanger, and a bad one. Iran, for all its deranged foreign policy aims, still won’t officially do what its paying other to do. Yet Kim needs to be feared, and has been carrying on about making his country into a maritime power, with the same halting, ham-handed success he’s had in making it a nuclear power. It’s entirely likely that the nuclear “submarine” that fired that missile towards South Korea was, in fact, an underwater barge. That, however is not the point.


Making global free trade untenable, or unprofitable, is. Right now trans-Pacific shipping is largely untouched by the spreading shipping crisis. Although traffic through the Panama Canal to the US east coast is down due to drought by, depending on whose numbers you use, 30-60%. The looming issue is a state-on-state war on commercial shipping on which the entire global economy depends. Navies can only do so much if the presumption of safety that has supported the markets is erased.


Risk management assumed that the risk is manageable. The current supply-chains are largely impossible without insurance. Since the US started its (arguably) over-use of economic sanctions – a “ghost fleet” of sanctions-busting ships, sailing with what is effectively black-market insurance, have hit the seas. No one would ever buy insurance from the mob unless they had to, and no one would really expect to collect on a claim. As North Korean contemplates wading into the fray, some 10% of global shipping is now under the umbrella of a very unstable system.  


Unfortunately, this is a little like wrapping a bad radiator hose in duct tape – it might get you a little further than without, but the break down is coming.

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