Shipowners, charterers and insurers have been forced to confront operational risks on a scale ‘not witnessed in decades’.
Two days after the United States under the administration of President Donald Trump invaded Venezuela, killed a large number of people and kidnapped then president Nicolás Maduro and his wife Cilia Flores, specialist maritime and energy sector journalist Paul Morgan warned that this has increased the risk in global logistics – which will impact costs.
With integrated global markets and fears that similar US actions may follow in Greenland, and that Trump may target other strategically positioned routes and ports, this is something that concerns everybody.
The events “transformed one of the hemisphere’s key coastal states into a contested zone of authority, forcing shipowners, charterers and insurers to confront operational risks on a scale the region has not witnessed in decades,” Morgan writes for gCaptain, a website that provides maritime and offshore news and insights.
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He explains that following the attack there was a power vacuum, and as long as there is uncertainty about who controls what, the shipping industry is in a very difficult position.
“Bills of lading, title and payment chains could all be challenged if a future Venezuelan government or international tribunal deems current loadings illegal,” he says.
He further warns against increased insurance premiums and requirements for pre-notification of trips to these waters, risk-averse financiers, and that some prominent shipping companies may decide to avoid the area completely and rather take longer, safer routes.
Looking at a map of global shipping routes, it is clear how busy the Caribbean is and how interlinked it is with other shipping routes.
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Fallout could last for years
Jan Scheepers, CEO van Comozar, which operates within the South African maritime sector, agrees that Trump’s Venezuelan adventure led to a huge increase in risk for commercial shipping in the southern Caribbean that may last for years.
“It effectively changed the waters to a contested maritime and political environment for ship owners, agents, cargo owners and insurers.”
He says harbour infrastructure was damaged, which added to the increased threat on the route and a risk-reclassification.
At the time of the attack, Venezuelan oil exports were subject to sanctions and conducted by a shadow fleet in a grey area of legal and commercial risk due to sanctions, blockades, and potential conflict over who exercises economic control, Scheepers says.
The US has now confiscated several vessels, and two Chinese super-tankers on their way to Venezuela to pick up oil have turned around.
“The anticipated consequences include higher insurance premiums, significant complications in logistics chains, and an increase in legal and financial uncertainty for any vessel operating in this area.”
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New demand-and-supply patterns may emerge
Scheepers agrees that international shipping lines may begin to avoid using this sea region, which “could have a broader impact on global trade through new demand-and-supply patterns”.
He says although South Africa is geographically far removed from the Caribbean conflict zone, integrated global markets mean that heightened risks and costs on key trade routes can ultimately have meaningful consequences for the South African economy through changes in insurance premiums, transport and trade costs, as well as commodity prices.
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Trump’s growing ‘network of control’
Professor Jo-Ansie van Wyk, research professor of international politics at Unisa, agrees that increased logistics costs will ultimately be paid by the consumer.
She further believes Trump is preparing to drastically expand his network of control, which is reflected, among others, in his threats to Colombia, his “renaming” of the Gulf of Mexico to the Gulf of America, his interest in regaining control of the Panama Canal, and his obsession about owning Greenland.
Van Wyk believes he will seek control of all maritime “chokepoints” to get control over global trade.
These are narrow or strategically critical locations along shipping routes where traffic is funnelled, which all vessels must pass through to access a particular sea lane or market.
Once in charge, he may impose high tariffs and even seize vessels and prosecute those in charge in terms of US law, as he is now doing with Maduro.
This may force traffic along longer routes like the one around southern tip of Africa, which will increase South Africa’s strategic value again, she says.
The alternative to global shipping is air transport, which is not suitable for large volumes.
Chances are that the world has reached a turning point in the globalisation of trade, with the US set to dismantle integrated global supply chains to serve US interests.
This article was republished from Moneyweb. Read the original here.