Near half world’s containers go via Taiwan Strait – how risky is tension?

Global supply chains are believed to have built a certain degree of resilience to shocks such as the military build up surrounding Taiwan, according to experts.

The escalation of military activity in the Taiwan Strait will not have escaped the attention of importers doing business in Asia. At the present time Chinese forces are holding live fire drills at up to six locations encircling Taiwan and many of those locations are not far from Taiwan’s key ports. Live missiles are already said to have been fired over Taiwan’s mainland from Chinese coastal areas in the east, marking the largest missile tests in decades. The tests are said to be ending on August 7th.

Nearly half of the world’s container ships passed through the Taiwan Strait – that’s the channel between mainland China and Taiwan – in the first seven months of 2022, according to Bloomberg. Despite its small size, the island is responsible for 2.1% of the world’s total value of exports (2021 data).

To the UK specifically, Taiwan’s exports gained value from 2020 to 2021. Total UK imports from Taiwan amounted to £4.4 billion in the four quarters to the end of Q1 2022 (an increase of 7.8% or £320 million compared to the four quarters to the end of Q1 2021). Taiwan was the UK’s 28th largest trading partner in year to the end of Q1 2022, accounting for 0.6% of total UK trade.

Taiwan’s main exports are electronics at around a third of all trade, but also important to the bike world are the base metals at 8.8% of trade; plastics and rubber at 7.1% and machinery at 7.5%.

The trend in the cycling sphere has been for the UK to source a lot more of its electric bikes from Taiwan ever since tariffs dented the viability of importing Chinese-made lines.

Meanwhile, the USA accounts for 14.7% of Taiwan’s exported goods and Europe 8.7%. Most exports by value go to fellow Asian countries.

Nearly $2 billion worth of bike goods, including eBikes were shipped from Taiwan in the first four months of 2022, a 28% mark up in value, according to Taiwan Bicycle Association data, that said that North America and Europe ate up the lion’s share of supply.

In that same period, component shipments were up 42.7%, topping $1 billion in value. Non electric bikes rose by near 20%, while electric bike shipments rose 12.8%.

Bicycles and other non-motorised cycles are believed to be the countries 50th largest export and it’s a segment with a steep growth rate, now worth $1,340,391,000 (19.1% in 2021 value).

Now entering peak season for shipping, concern is most certainly registering with freight forwarders and shippers, but in part down to the economic shocks of the past few years, we’re told that the supply chain has built in a greater ability to weather storms.

“The global supply chain is interconnected and all the major stretches like Taiwan Strait are nerve centres of these value chains. And if any one stretch is blocked, the undercurrents are felt across the system. Especially at a time when the industry is busy shipping cargo for the peak season, the impact will be reverberated across. What will decide the degree of impact is the tenure of this disruption.” said Christian Roeloffs, cofounder and CEO, Container xChange, a technology marketplace and operating platform for container logistic companies.

“While we do expect trade disruptions across Taiwan, China, South Korea and Japan due to this if the military action persists longer or in intensity, another view is that the supply chain industry has built resilience over these past 2 years owing to many such shocks in the past. Case in point, we were expecting lockdowns in China (that lasted 2 months) to impact the peak season negatively. However, we do not see any such disruption, especially on container prices and leasing rates. Therefore, it will be very difficult to forecast the degree of impact that this show of strength by China will cause on containerised trade in these markets,” added Roeloffs.

“The immediate impact will be rerouting of the vessels through the eastern side of the island which will add a few days in the voyage of the containerised cargo”, according to information shared by a customer of Container xChange with business in Taiwan.

As for the ripple effects on pricing of containers, which has recently been sliding downwards, Container Xchange say that they have not yet noted signs of rises in respect of the tension in the Far East.

The global average container prices decreased from $3339 in July to $2730 (so far in August) by 18%.

In CyclingIndustry.News’ most recent podcast, trade veteran and market researcher Jay Townley shared his view on the recent escalation and what it means for our trading with partners in Asia. Tune in to that here.