Southeast Asia's Ports Are Safe As Alternative Europe-Asia Shipping Routes Look Unfeasible

Most Europe-Asia trade will still pass through the Malacca Straits in the coming decades.

Southeast Asia is on a port-development frenzy. Cambodia wants to build a $1.7 billion canal to link Phnom Penh to the coastline, which would mean more Cambodian imports and exports can be transported through Cambodia’s maritime ports (one under development in Kampot and the already established deep-sea port in Sihanoukville). Currently, most of Cambodia’s shipping goes through Vietnam’s southern ports, so the canal would boost Phnom Penh’s sovereignty over its trade. If the “Funan Techo Canal” is completed (some reckon by 2028), that would leave land-locked Laos as the only Southeast Asia without its own maritime port. However, Vietnam has allowed Laos to buy a majority stake in its Vung Ang Port. At the same time, Malaysia is now trying to double the capacity of its largest port, Klang, which is also the second-largest in the region. Westports Holdings, the operator, will invest $8.34 billion over the coming decades to increase its annual capacity from 14 million twenty-foot equivalent units (TEU) to 27 million. Malaysia’s Sapangar Bay Container Port, in Sabah, is also expected to raise its capacity from 500,000 to 1.25 million TEU by 2025. Thailand’s Prime Minister Srettha Thavisin, who’s fizzing with so many schemes at the moment, is pushing for vast port redevelopment. Vietnam now has three of the 50 largest container ports globally. And China is building a US$7.3 billion deep-water port in Myanmar.

This is certainly good news for Southeast Asia and Europe. It demonstrates the region’s commitment to free trade and shows that Southeast Asian governments are confident of the region’s place in Europe-Asia shipping. But are there reasons for concern? Houthi attacks on vessels in the Red Sea have led to much chatter about whether Europe-Asia sea shipping needs alternative routes that don’t pass through the Suez Canal and thus the Red Sea, especially as the conflict in the Middle East escalates. In February, it was reported that freight rates had surged: “Asia-N. Europe rates are up 173%, Asia-Mediterranean prices doubling, and carriers implementing surcharges ranging from $500 to $2,700 per container.” If these alternative routes were feasible (they’re not), it would threaten Southeast Asian trade.

Currently, the majority of seaborne shipping between Europe and Asia passes through the Suez Canal, meaning it must circle around the tip of India and head through the Malacca Straits. That means cargo ships heading to or from China, Japan and South Korea pass through Southeast Asia. And modern shipping is profitable because vessels make many stops, so a vessel on its way to Japan, for instance, will likely make stops in several Southeast Asian ports, thus making Europe-Southeast Asia trade cheaper and easier. As one article put it, “While non-stop from origination to destination will always be the preferred, simplest and most straightforward service favoured by large shippers, transit and transshipment are common practices in containerised shipping, especially in long-haul journey and with cargo from smaller countries.” Indeed, most of Vietnam’s €50 billion a year exports to the EU are not transported on vessels travelling non-stop from Ho Chi Minh City to Hamburg. But if there were to be feasible alternative shipping routes from Northeast Asia to Europe that don’t pass through the Malacca Straits, that would make quite a dent in Europe-Southeast Asia trade. Fortunately, those alternatives aren’t so attractive.

Source: https://transportgeography.org/wp-content/uploads/Map_Alternatives_Suez_Canal.pdf

One alternative is the Cape Route, with vessels heading around southern Africa to avoid the Suez Canal and the Red Sea. But nobody wants to do that because it adds an extra 10-12 days to the journey. Shipments between Europe and China passing through the Suez Canal take between 30-45 days, so increase that by a third and it’s a considerable delay. This would substantially increase costs for the shipping companies, which would be passed on to the exporters/importers and, thus, consumers (so weakening the price advantage of Southeast Asian exporters). Nonetheless, the route would mean vessels still have to pass through the Malacca Straits, so not all bad for Southeast Asia.

The Chinese media has been pushing the idea that more Europe-China trade will go via freight train, although that seems a very short-term and limited alternative. Yes, it’s quicker than sea freight, but it is more costly. Moreover, it must pass through Russia, which is obviously a geopolitical no-no for now. This Diplomat article from a few years back is worth reading. It notes: “During 2021, well over 600,000 TEUs were moved between Chinese and European railports, with westbound cargo accounting for some two-thirds of the total. The trade represented a total value of some $40 billion. By comparison, containerized ocean freight between Asia and Europe via the Suez Canal route amounted to some 26.5 million TEUs in the same year, of which over 19 million TEUs were westbound.” The obvious downside for Southeast Asia, if this rail freight between Northeast Asia and Europe were to increase, is that it would cut off Southeast Asia’s ports. But, as stated, rail freight between China and Europe very unlikely to ever rival sea freight via the Malacca Straits and the Suez Canal.

Another alternative, much hyped in some quarters, is the Northern Sea Route, with sea freight transversing around Russia’s Arctic coastline, which some analysts expect to be “ice-free by 2050”. Bloomberg published an interesting article about it this month, noting it could cut 30% to 50% off transit times compared to the Suez Canal. It would also cut off Southeast Asia’s ports. But the scheme is half-baked (with all the hallmarks of another Moscow-backed failed project) and almost certainly won’t work. For starters, you’ll have to wait until the oceans are ice-free in the winter, not just the summer, if it’s going to be an all-year-round route (which shipping companies prefer). Second, there aren’t yet any of the aides anchored to the seabed that guide ships through dangerous passages (and anchoring those aides in the Arctic isn’t easy). Moreover, there’s only one major Russian conurbation and port on the Arctic (Murmansk) and almost no on-land transport links across the entirety of the coastline. That means it will be near impossible to offer any support to vessels if they encounter problems during this route, which would massively push up insurance costs, probably by so much that it simply makes this route unprofitable.

Overall, it’s almost certain that the vast majority of Europe-Asia shipping will still pass through the Malacca Straits in the decades to come, which is good news for Southeast Asia (and, thus, Europe-Southeast Asia trade). And it explains why tens of billions of dollars are now being thrown at the region’s port infrastructure.