Maritime Chokepoint
A maritime chokepoint is a narrow sea passage that a large share of world trade must pass through and that has no cheap alternative route. Disruption at one raises freight, insurance and energy costs and quickly reaches currencies and payments.
Also called: chokepoint · choke point · shipping chokepoint · trade chokepoint · strategic strait
The main ones are the Strait of Hormuz, the Strait of Malacca, the Suez Canal, the Bab el-Mandeb, the Turkish Straits and the Panama Canal. Hormuz and Malacca each carry around a fifth or more of the world's seaborne oil. Malacca is also the shortest route between the Indian Ocean and the factories of East Asia.
When a chokepoint is blocked or becomes dangerous, ships divert. Going round Africa instead of through Suez adds about ten days. Freight rates and war-risk insurance premiums rise, delivery schedules slip and importers must hold more stock. For countries that import their energy, a higher fuel bill means more hard currency leaving every month, which pressures reserves and the exchange rate.
The payment effects follow. Goods that arrive late are paid late, letters of credit expire and need amending, demand for trade finance rises as working capital is tied up at sea, and sanctions questions multiply when vessels are rerouted through unfamiliar ports. A chokepoint is a physical fact that turns into a financial one within weeks.
See also
- Letter of CreditA letter of credit is a bank’s conditional undertaking to pay when the seller presents documents that comply with its stated terms. Banks examine documents rather than confirming the physical quality or performance of the goods.
- Import CoverImport cover is the number of months a country could keep paying for its imports out of its foreign exchange reserves if no new foreign currency came in. It is the simplest measure of how long a country can withstand an external shock.
- Hard CurrencyA hard currency is one that is widely accepted for international payment, freely convertible and expected to hold its value, such as the US dollar, euro, yen, pound sterling or Swiss franc. Suppliers abroad generally insist on being paid in one.
- IncotermsIncoterms are standardized trade terms published by the International Chamber of Commerce that allocate specified delivery responsibilities, costs and risks between buyer and seller. They do not by themselves determine ownership, payment method or every contractual obligation.
- Bill of LadingA bill of lading is a transport document issued in connection with the carriage of goods by sea. Depending on its form, it can evidence receipt of the goods, contain the carriage terms and function as a document controlling delivery.
- Open-Account TradeOpen-account trade allows the buyer to receive goods or services before payment becomes due. It supports the buyer’s working capital but leaves the supplier exposed to the buyer’s credit and payment risk.