IAME 2020 CONFERENCE | HONG KONG
Paper ID 153

Yasuhiro AKAKURA
National Institute for Land and Infrastructure Management, MLIT
Graduate School of Management, Kyoto University
Email akakura-y83ab@mlit.go.jp
Kenji ONO
Graduate School of Management, Kyoto University
Email k-ono@hanshinport.co.jp

Estimation of Economic Benefit of Major Chokepoint on
Global Trade and Economy
Is the benefit of the Malacca Strait larger than that of
the Suez/Panama Canal?
Abstract
The highly frequent, stable, and inexpensive maritime transport is the cornerstone of global
trade and economy, with global shipping operations being concentrated at major straits andcanals, which are called chokepoints. For example, in 2017, the total cargo value passing
through the Malacca Strait was estimated at $3 trillion, accounting for 18% of world trade, anincrease from 13% in 2007. Although assessment of economic benefits is crucially importantfor ensuring the sustainability of transport at these points, most previous studies were limited
to a particular strait or ship type. Therefore, this study estimates the economic benefits of major
chokepoints: the Malacca Strait, the Suez Canal, and the Panama Canal. In 2017, the annual
direct economic benefits were estimated at $46 billion for the Suez Canal and $21 billion for
the Malacca Strait and the Panama Canal. Although the cargo value passing through the
Malacca Strait was larger than that of the Suez Canal, the shortcut distance of the Suez Canal
was much longer. Additionally, the total economic values were estimated to be approximately
twice as large as the direct benefits. Moreover, beneficiaries’ contributions toward
strengthening the navigational capacity, efficiency, safety, and disaster resilience of thesechokepoints is discussed.
Keywords: global supply chain, maritime trade, chokepoint, economic benefit.

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Estimation of Economic Benefit of Major Chokepointon Global Trade and Economy
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1. Introduction
The highly frequent, stable, and inexpensive maritime transport is the cornerstone of global
trade and economy, with global shipping operations being concentrated at major straits andcanals, which are called chokepoints or maritime global critical infrastructures. For example,
in 2017, the total cargo value passing through the Malacca Strait was estimated as $3 trillion,
accounting for 18% of world trade, an increase from 13% in 2007 (Akakura and Ono, 2019).
Although the assessment of economic benefits is crucially important for ensuring thesustainability of transport at these points, most previous studies were limited to a particularstrait or ship type. This study estimates the economic benefits of major chokepoints: theMalacca Strait, the Suez Canal, and the Panama Canal.
The British Admiral John Fisher is thought to be the first to use the word "chokepoint" toindicate the geopolitical importance of these points in the Royal Navy’s strategy (Welchi, 2005,
Daly, 2009). The word “chokepoint” originally meant a point where enemies suffer by being
choked off. In military strategy, it is a geographical feature, including points on land, such as
valleys and bridges, where an armed force is forced to pass through, thus reducing combat
power at narrow passage. Nowadays, chokepoints refer to the intercontinental sea routes suchas the Malacca, Hormuz, Gibraltar, Bab el Mandeb, Dover, and Bosporus Straits; the Suez andPanama Canals; the Cape Horn, Cape of Good Hope Routes, among others, where thenavigational tracks are concentrated, as shown in Figure 1, indicated by red circles.

Figure 1 – Example of Chokepoints
Source: The Navigation Route Map is from Wu et al (2017)
Since the international division of labor has highly materialized in the current world economy,
it can be said that trade is its keystone. The importance of chokepoints is obvious considering
the economic slowdown caused by the dysfunction of such critical unit. The significance of
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chokepoints has further increased because of the highly advanced international division oflabor and the recent development of sophisticated global supply chains. Additionally, there
have been many instances of disasters or incidents in recent years, prompting the closure ofchokepoints (Table 1). For instance, many ships collided with two grounded ships at the Suez
Canal in July 2018, and two sailing oil tankers were attacked at the Hormuz Strait in June 2019,
which increased the risk of strait blockade. However, it has not been clearly presented in termsof how important each chokepoint is, that is, how chokepoints benefit the world economy.
Moreover, although the Suez and Panama Canals carried out projects to increase theircapacities in recent years, some chokepoints may not be able to cover the project costs andundertake the necessary actions to secure the navigational capacity, efficiency, and safety.
Furthermore, since a closure of any one of these points will possibly result in a devastating
impact on world trade and economy, countermeasures are needed for preventing or reducing
the impact caused by large-scale disasters. Therefore, it is very important to assess not only the
profitability but also beneficiaries. This study estimates the overall economic benefits of major
three chokepoints, including analysis of benefit incident areas.
Table 1 – Disaster/Incident at Chokepoint
Year
1956
1967
1989
1997
2012
2018
2019

Chokepoint
Suez Canal
Suez Canal
Panama Canal
Malacca Strait
Panama Canal
Suez Canal
Hormuz Strait

Disaster/Incident
Impact on Chokepoint
Suez Crisis
Canal was closed for 10 months
Arab-Israeli War
Canal was closed for 8 years
Invasion of Panama
Canal was closed for 1 day
Ship (Oil Tanker) Collision
Oil recovery efforts spanned 1 month
Heavy Rain and Flood
Canal was impassable for 17 hours
Multi-Ships Grounding and Collision
Canal was impassable for 2 days
Political Conflict
Attack against Tanker/Risk of Blockade

2. Literature Review
The importance of chokepoints has been recognized widely in the literature. Akimoto (2001)
listed chokepoints in Southeast and Southwest Asia, and discussed the risks and detour routesof these points. Hirst (2014) emphasized the importance of the Malacca Strait for seaborne
trade. The U.S. Energy Information Administration (2017) has continuously estimated thevolume of oil transiting through world chokepoints. Bailey and Wellesley (2017) discussed theimportance and risks of chokepoints in global food trade. Ducruet (2016) estimated thegeographic coverage and canal-dependent flows of the Panama and Suez Canals.
From the economic viewpoint, Morisugi et al (1992) defined the economic value of
chokepoints as the transport cost savings due to the availability of points, and estimated theeconomic value of the Malacca Strait. Additionally, Rimmer and Lee (2007), Qu and Meng
(2012), and Kajitani et al (2013) estimated the economic impact of the Malacca Strait’s closure,
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while Feyer (2009), Hugot and Dajud (2016) investigated the effects of the Suez Canal closure
between 1967 and 1975. With respect to the Panama Canal, Maurer and Yu (2008) calculated
the economic impact between 1921 and 1937, and Autoridad del Canal de Panamá (2006) andPanano et al (2012) estimated the economic impact of the expansion project, which was
finished in 2016.
Many previous studies analyzed the impact of expansion of the Panama Canal on maritime
networks (Fan, 2009, Akakura and Matsuda, 2014, Liu et al, 2016, Martinez et al, 2016,
Herrera et al, 2017, Pham et al, 2018, Fan and Gu, 2019). Ungo and Sabonge (2012) assessed
the competitiveness of the Panama Canal route in comparison with the intermodal route andthe other all-water routes, while Notteboom (2012) analyzed the relation between the Suez
Canal route and the Cape Horn route.
Furthermore, many studies analyzed the impact of new navigation routes such as the Northern
Sea Route, which has recently gained a momentum for maritime trade as the Arctic sea-ice
retreats due to global warming (Liu and Kronbak, 2010, Schøyen and Bråthen, 2011, Furuichi
and Otsuka, 2013, Abudul Rahman et al, 2014, Zhang et al, 2016, Zhu et al, 2018, Shibasaki
et al, 2018). Similarly, Somanathan et al (2009) and Fan et al (2012) analyzed the potential of
the Northwest passage in northern Canada. Jeevan et al (2018) and Yuan et al (2019)
investigated the feasibility of the project to construct the new Kra Canal in Thailand. Yip andWong (2015) and Chen et al (2016, 2019) assessed the feasibility and economic effects of the
Nicaragua Canal, for which commencement of the construction works was reported in 2016,
including the technical and financial difficulties of the project.
As for the research concerning more than two chokepoints, Zheng et al (2019) analyzed theeffect of the Panama and Suez Canals on the locations of liner hub ports. Wu et al (2019)calculated the changes in container shipping networks based on the disruptions of the Malacca
Strait, Panama Canal, and Suez Canal. Gao and Lu (2019) estimated the impact of theblockades of nine chokepoints on transportation cost of the Chinese fleet.
As described above, although there have been many studies on the chokepoints of the maritime
transportation system, most of them were limited to a particular chokepoint or ship type.
The contribution of this study to the literature is two-fold. First, this study proposes a method
for estimating the economic benefits of chokepoints in terms of all maritime cargos to assess
their impact on world trade and economy. Second, the estimation result of the economic benefit
generated by a particular chokepoint, including benefit incident areas, enables us to discuss abeneficiary’s contribution toward maintaining and improving the navigational capacity,
efficiency, safety, and the disaster resiliency of the chokepoint.

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The remainder of this paper is structured as follows. Section 3 estimates the direct economic
benefit, describes the methodology and data, and provides calculation examples. The overall
benefit, including the ripple effects, is presented in Section 4. Section 5 discusses and identifies
the stakeholders of the chokepoints that are requested jointly to participate in the cost/burden
sharing scheme to operate and manage the chokepoint traffic in a sound manner. Section 6summarizes the conclusions.
3. Direct Benefit
3.1. Estimation Flow
This study estimates the economic benefit generated by major maritime global criticalinfrastructures: the Malacca Strait, the Suez Canal, and the Panama Canal. The direct economic
benefit is defined as the transport and inventory cost savings due to the availability of thechokepoint. Figure 2 shows the estimation flow for each chokepoint and each sector, withsectors indicating the ship type and corresponding cargo commodities. First, a shortcut distance
table is created, considering the ship size constraint of the chokepoints. Then, the waterborne
transportation cost savings between regions are calculated based on ship travel distance
reductions, ship navigation speeds, operation costs, and the numbers of ship sailing. In addition,savings in the inventory carrying costs are calculated using the trade values and ship travel day
reductions between regions. The total direct benefits are the sum of the savings in waterborne
transportation costs and inventory costs.
Each Chokepoint, Each Sector
Shortcut Distance Table
Ship Speed
Ship Travel Day Reductions
World Trade Values
Ship Operation Cost

Ship Size, Unit Cost
Numbers of Ship Sailing

Shipping Cost Saving

Inventory Cost Saving
Total Direct Benefit

Figure 2 – Estimation Flow
3.2. Regional Division and Representing Ports
The shortcut distance table shows the ship travel distance reductions between areas/countries.
In this study, the world was divided into 14 regions (i.e., 10 areas and 4 countries, which werelocated at three target chokepoints), as shown in Figure 3. The ship travel distances between
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the representing ports of these regions were calculated based on the Voyage Planner ofMaritime Traffic (2019). We chose only one representing port for each region. However, two
representing ports were selected for North America, South America, Panama, and Egypt asshown in Table 2, since we needed to identify whether ships pass through the Panama and Suez
Canals. Regarding the Panama Canal, the ports of Colon and Balboa can be used alternatively
for containers and general cargoes because of the existence of a railway connecting the Pacificand Atlantic sides of Panama.

NEurope●

NAmerica●●●

NEAsia

MedSea
●
●

●
●

MEast
Egypt

●
●

SAsia

AfricaPanama●SEAsia●●Malaysia●●

Singapore

SAmerica●

Oceania●●

Figure 3 – The Regions
Source: Made by mapchart.net (https://mapchart.net/world.html)
Table 2 – Representing Ports
RegionNAmerica
PanamaSAmerica
NEurope
MedSeaEgypt
AfricaReperesent Port
Los Angeles
New York
Colon
BalboaCallaoSantosRotterdam
Valencia
Port Said
Suez
DurbanRegionNE Asia
SE Asia
Singapore
Malaysia
SAsia
MEast
Oceania

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Reperesent Port
Shanghai
Laem Chabang
Singapore
Port Klang
Colombo
Dubai
Melbourne

6Estimation of Economic Benefit of Major Chokepointon Global Trade and Economy
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3.3. Shortcut Distance
The shortcut distances are the differences in distance between routes via chokepoints anddetour routes. All ships are assumed to navigate the shortest route. Figure 4 and Table 3 shows
the possible routes and their distances between Shanghai (Northeast Asian port) and Rotterdam(North European port). These routes were set according to the ship sizes. Under Suezmax, thestandard route is the blue line (10,600 miles) via the Malacca Strait and the Suez Canal. Whenthe Malacca Strait is impassable, the detour route is passing through the Lombok strait (11,813
miles): route [1] and [3]. The Sunda Strait can be another detour route; however, it contains
many navigational hazards including strong tidal flows, sandbank formations along thewaterway, a live volcano, poor visibility during squalls; and the existence of numerous oil
drilling platforms and small islands and reefs that may disrupt safe navigation (Mohd Rusli,
2012). If the Suez Canal is not a viable option (e.g., very large crude carriers (VLCCs), andvery large ore carriers (VLOCs) cannot pass through the Suez Canal), the navigation route is
via the Cape of Good Hope (13,602 miles): route [4] and [5]. When the Malacca Strait is
impassable, the detour route distance is 14,529 miles.

Figure 4 – Examples of Ship Travel Routes
Source: The map is from mapchart.net (https://mapchart.net/world.html)

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Table 3 – Examples of Ship Travel Distances
Ship SizeState
ActualUnder Suezmax
Malacca Impassable(~200,000DWT)
Suez Impassable
ActualVLCC, VLOC Malacca Impassable
Suez Impassable

RouteStandard[1], [3][4], [5][4], [5][1], [2], [5][4], [5]Distance (nm) Difference (nm)
10,600－11,813+1,213
13,602+3,002
13,602－
14,529+927
13,602±0

Source: Calculated by Voyage Planner of Maritime Traffic (2019)
3.4. Data
The basic data for estimating direct economic benefits were the trade values between regions.
The numbers of ship sailings were calculated based on the trade values considering the ship
sizes and unit costs, as shown in Figure 2. The data source was the Global Trade Analysis
Project (GTAP) Database Ver.9, with the data year being 2011. Its trade data were obtained
from the United Nations International Trade Statistics Database (UN COMTRADE) and wereselected to be consistent based on the statistical reliability of reporting countries (Gehlhar,1996). The trade values were divided into categories according to the ship type to analyze thetransport cost savings. Table 4 shows the sectors and their trade values. All GTAP sectors werecategorized according to the ship type except for the service trade.
3.5. The Estimation Method
First, the transport cost savings were estimated based on the trade values. The sea trade volume(weight) of i sector from r region to s region ( Vrsi ) is expressed as follows:
Ti
Vrsi = rsi β i(1)αwhere T is the trade value of i sector from r region to s region, α i is the unit cost of cargos ofi sector, and β i is the rate of sea transport among all transport modes of cargo for i sector, as
shown in Table 5. To estimate the maritime trade volume, the unit costs corresponding to alltransport modes were used to convert from value to volume first, then the volume of maritime
cargoes were calculated using the weight/twenty-foot equivalent unit (TEU) base. The figures
in Table 5 were calculated based on the data of USA Trade Online and (Port Import/Export
Reporting Service) PIERS by mapping the 6-digit (Harmonized System) HS codes to GTAP
sectors (Angel, 2016). The rate of maritime cargo to the whole inter-regional trade wasassumed to be constant for each sector regardless of the export/import region.
irs

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Table 4 – Sectors and Their Trade Values
Sector1Container
2Grain3Coal
4Ore
5CrudeOil
6OilProd
7Gas
8Car
9GeneralC
10Services

Trade Value (bn$)
GTAP Ver.9 Code
Ship Type4, 7, 8, 10, 12, 14, 19, 20, 22,Container Ship
8,467 52.8%
23, 25~31, 34, 36, 37, 39~42
Bulk Carrier169
1.1%
2, 3, 515
Bulk Carrier
129
0.8%
18
Ore Carrier
360
2.2%
16
Oil Tanker
1,505
9.4%
32, 33
Product Tanker
3,179 19.8%
17
Gas Carrier
268
1.7%
38
Vehicle Carrier
1,276
8.0%
1, 9, 13, 21, 24, 35
General Cargo Ship
675
4.2%
43~57
-

Source: Trade Value (2011) is from the GTAP Database Ver.9

Table 5 – Unit Costs and the Rates of Sea Transport for Sectors
Sector
Unit Cost
Rate of Sea
1Container 29,195 $/TEU
97.59%
2Grain280 $/MT
99.99%
3Coal
116 $/MT
100.00%4Ore
146 $/MT
99.97%
5CrudeOil
359 $/MT
100.00%

Sector
6OilProd
7Gas
8Car
9GeneralC

Unit Cost
1,222 $/MT
242 $/MT
11,068 $/MT
645 $/MT

Rate of Sea
99.71%
100.00%98.44%
99.82%*Rates of Sea were based on MT (Metric Ton)

Source: Calculated based on the data of USA Trade Online and PIERS
The number of ship sailings for i sector from r region to s region ( N rsi ) is described as follows:Vi(2)
N rsi = i rs i
Crs L
where Crsi is the cargo carrying capacity of the ships of i sector from r region to s region. Table
6 shows examples of a container ship. Regarding the other ship types, the cargo carrying
capacities were assumed to be 90% of deadweight tonnage (the U.S. Energy Information
Administration, 2017). Li is the load factor of the ships of i sector, with 60% for the container
ships and vehicle carriers based on the data of Drewry (2019) and Panama Canal Authority(2019) and 100% for the other ship types. The Transport cost savings ( SCrsi ) estimated asfollows:∆Drs i
SCrsi =So(3)
Ss i
where ∆Drs is the shortcut distance between r region and s region, Ss i is the speed of ships of i
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sector, and Soi is the operating cost of the ships of i sector. Table 7 shows examples of Ss i and
Soi . The operating cost of a ship is derived from the cost benefit analysis manual for port
projects (Ports and Harbours Bureau, 2017), and includes costs for shipbuilding, bunker fuel,manning, repair, managing, and so on.
Table 6 – Examples of Ship Size by region (Container Ship, TEU)O
D 1NEA 2SEA 3Sin 4Mal 5SA
1 NEAsia
2,000 2,000 2,000 6,000
2 SEAsia
2,000
2,000 2,000 6,000
3 Singapore 2,000 2,000
2,000 6,000
4 Malaysia
2,000 2,000 2,000
6,000
5 SAsia
6,000 6,000 6,000 6,000
6 MEast6,000 6,000 6,000 6,000 2,000
7 Oceania
4,000 4,000 4,000 4,000 1,000
8 NEurope 14,000 14,000 14,000 14,000 6,000
9 MedSea
14,000 14,000 14,000 14,000 6,000
10 Egypt
14,000 14,000 14,000 14,000 2,000
11 Africa
4,000 4,000 4,000 4,000 2,000
12 NAmerica 8,000 8,000 8,000 8,000 8,000
13 Panama
8,000 8,000 8,000 8,000 8,000
14 SAmerica 8,000 8,000 8,000 8,000 4,000

6ME 7Oce 8NE 9Med 10Egy 11Af 12NA 13Pan 14SA
6,000 4,000 14,000 14,000 14,000 4,000 8,000 8,000 8,000
6,000 4,000 14,000 14,000 14,000 4,000 8,000 8,000 8,000
6,000 4,000 14,000 14,000 14,000 4,000 8,000 8,000 8,000
6,000 4,000 14,000 14,000 14,000 4,000 8,000 8,000 8,000
2,000 1,000 6,000 6,000 2,000 2,000 8,000 8,000 4,000
1,000 6,000 6,000 2,000 2,000 8,000 8,000 4,000
1,000
4,000 4,000 1,000 1,000 4,000 4,000 1,000
6,000 4,000
2,000 2,000 6,000 4,000 4,000 6,000
6,000 4,000 2,000
500 6,000 4,000 4,000 6,000
2,000 1,000 2,000 500
2,000 4,000 4,000 6,000
2,000 1,000 6,000 6,000 2,000
2,000 2,000 4,000
8,000 4,000 4,000 4,000 4,000 2,000
2,000 4,000
8,000 4,000 4,000 4,000 4,000 2,000 2,000
2,000
4,000 1,000 6,000 6,000 6,000 4,000 4,000 2,000-

Source: Calculated based on the Data from Containership Databank of the MSD Transmodal
Table 7 – Ship Speeds and Operating Costs
TEU
Capa.
500
1,000
2,000
4,000
6,000

Speed
(kt)
11.4
13.0
14.6
16.2
17.2

Operating
Cost (d/$)
23,31337,01459,321
101,572
141,489

TEU
Capa.
8,000
10,00012,00014,000

Speed
(kt)
17.9
17.9
17.9
17.9

Operating
Cost (d/$)
181,046
216,630
252,428
289,223

Source: The Cost Benefit Analysis Manual for Port Projects (Ports and Harbours Bureau, 2017)
Second, the inventory savings were estimated based on the capital cost. Since the holding
inventories induce a carrying cost, such as the storage cost, insurance, etc., Richardson (1995)
estimated the rate of annual inventory carrying cost to the inventory value as shown in the“Min./Max.” column of Table 8. However, estimating the rate is difficult, since it may varycargo to cargo. In this study, the average values of the limited contents were applied to estimate
the savings of the inventory carrying costs due to the availability of the chokepoint, as shownin Table 8. Since long-term storages are usual for coal, ore, and crude oil, obsolescence was
excluded. The inventory cost savings ( SI rsi ) are calculated as follows:

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Estimation of Economic Benefit of Major Chokepointon Global Trade and Economy
Paper ID 153∆Drs iγ
Ss iwhere γ i is the inventory carrying cost rate of i sector to the inventory value.
SI rsi =(4)

Finally, the total direct benefit ( DB ) was calculated as follows:=DB∑∑∑ ( SC + SI )
i
rs

i

r

i
rs

(5)

s

Table 8 – Rate of Annual Inventory Carrying Cost to the Inventory Value
Description
Cost of money
Taxes
Insurance
Warehouse expense
Physical handling costs
Clerical & inventory control
Obsolescence
Deterioration & pilferage
Total

Min./Max. Coal, Ore, Crude Oil The Others
6% ~ 12%✓✓2% ~ 6%✓✓
1% ~ 3%✓✓
2% ~ 5%2% ~ 5%3% ~ 6%
6% ~ 12%✓3% ~ 6%25% ~ 55%
15%
24%

Source: The “Min./Max.” rates are obtained from Richardson (1995)
3.6. The Estimation Results
The annual direct benefits were estimated at $46 billion for the Suez Canal, $21 billion for the
Malacca Strait and the Panama Canal in 2017, as illustrated in Figure 5. The cargo values
passing through the Malacca Strait were larger than those of the Suez Canal; however, the ship
travel distance reductions using the Suez Canal were much longer. Morisugi et al (1992)
considering the shipping cost savings only, estimated figures of $4 billion/year from 1966 to
1985, and anticipated a figure of $13 billion/year for the next 20 years. Qu and Meng (2012)
estimated the impact of blockade of the Malacca Strait, showing that the losses of shipping
would be two to five times larger than that of inventory depending on the blockade duration.
Nevertheless, it is difficult to compare the results of this study with other previous studies,
since the estimation methods and time points are different. Figure 6, shows the share of benefits
by the ship type, with the shares of containers being larger than those of bulk and tanker cargos
in all chokepoints, especially in the Panama Canal.

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100%

50

Benefits (bn $)40
30

Shipping Cost

20
10
0

Malacca

Suez

OthersShare of Direct Benefit

Inventry Cost

80%
Tanker

60%
Bulk

40%

0%

PanamaFigure 5 – Direct Benefits

Container

20%

Malacca

Suez

PanamaFigure 6 – Share by Ship Type

4. Overall Benefit
4.1. Estimation Method
The direct economic benefit, estimated in the previous section, induce a ripple effect, which
generates new demand, and consequently, boost the economy. This overall economic benefit
was evaluated by employing the GTAP model. The GTAP model and Database wasconstructed by the Purdue University using a global network of researchers and policy makers.
This model is one of the representative models of Spatial Computable General Equilibrium(SCGE) and is widely used to evaluate the economic impact of international trade policies suchas the change of import tariffs. In this model, an optimizing behavior of economic agents are
assumed: utility maximization for households and profit maximization for producers. The
production function of producers in the GTAP model is shown in Figure 7. The intermediate
input comprises a double layered structure, and the elasticities of substitution for theintermediate input were set at the domestic and international levels. One transport sector is set
in the whole world, provides transport services, and receives an amount of money that subtracts
import tariff from the difference between import cost, insurance, and freight (CIF) prices andexport free on board (FOB) prices of each sector.
In the estimation, it was assumed that each chokepoint could not be passed through, and all
direct economic benefits were reflected by the tariff rates. Regarding the transport costs, theincome of transport sector was reduced directly by adding import tariffs ( ATrsi ), as shown inequation (6)ATrsi =

SCrsi
Trsi

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Quantity of Output qo(j,s)
Surplus Value qva(j,s)
Land

Labor Capitalqfe(i,j,s)

Leontief
Intermediate Input qf(j,s)
CES
Domestic qfd(i,j,s) Foreign qfm(i,j,s)
CES
Regions qxs(i,j,s)

Figure 7 – Production Function of the GTAP Model
Source: Hertel and Tsigas (1997)
Although the inventory costs are not imposed on the transport sector directly, additional traveldays are the trade barrier for cargo owners. Minor (2013) calculated the ad valorem trade time
costs for GTAP. The increase in the inventory cost with respect to the converted additionaltariffs ( AI rsi ) was calculated as follows:∆Drs iδ
AI rsi =(7)
Ss i
where δ i is the conversion factor of the ad valorem trade time cost of i sector as shown in Table
9. The sum of ATrsi and AI rsi were used as input into the GTAP model to estimate the impact
on each sector.
Table 9 – The Ad Valorem Trade Time Cost (% points per day)
SectorConversion Factor
1Container
0.77
2Grain
0.17
3Coal
0.00
4Ore
0.45
5CrudeOil
0.00

SectorConversion Factor
6OilProd
1.44
7Gas
0.00
8Car
1.65
9GeneralC
1.01

Source: Calculated based on the data in Minor (2013)
Although there is a discussion that additional tariff rates in the SCGE model leads to an increasein government revenues, the proportion of tariff revenues to government revenues were only
1.8% in the United States and Japan (Ministry of Finance (Japan), 2017).
4.2. The Estimation Results
In 2017, the annual overall benefits were estimated at $126, $41, $35 billion for the Suez Canal,
the Malacca Strait, and the Panama Canal, respectively, as illustrated in Figure 8. The overall
benefits were equivalent to approximately 1.7 to 2.7 times of direct benefits. Using the original
SCGE model, Kajitani et al (2013) estimated the impact of the Malacca Strait’s closure as $15
billion in 2004. Figure 9 shows the change rate of gross domestic product (GDP) of each region.
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The change rates greatly differed among regions. For the Malacca Strait, the economic benefits
for Southeast Asia was the largest; for the Suez Canal, benefits for South Asia and the Middle
East was the largest; while for the Panama Canal, benefits for South America was the largest.
Additionally, there were some regions with negative economic benefits, as the chokepoints
have a negative impact on these economies. Since chokepoints boost the economies ofneighboring regions, distant regions might slightly decline.

0

Malacca

Suez

PanamaFigure 8 – Estimate Result of Overall Benefit

SAmer

-0.1%

NAmer

0.0%

Africa30

PanamaMalacca

0.1%

NEu
MedS

Direct0.2%

Oceania

60

0.3%

SAsia
MEast

90

0.4%

SEAsiaBenefits (bn $)Indirect

Suez

0.5%

NEAsia120

Change Rate of GDP

0.6%

Figure 9 – Change Rate of Real GDP

5. Discussion
5.1. The possible economic impact of chokepoint closing
The large benefits brought by the chokepoints indicate that a closure of any one of these points
will possibly result in a devastating impact on global trade and economy. Some previous studies
estimated the economic impact of the closure of the Malacca Strait (Rimmer and Lee, 2007,
Qu and Meng, 2012, Kajitani et al, 2013). The basic concepts of these estimations were thesame as those used in this study: detour routes induce additional cost. However, there are manydifferences between the route choice at ordinary time and the sudden route change.
First, at the outbreak of a chokepoint closure, many ships will be forced to wait at the entranceof the closed chokepoint as assumed by Qu and Meng (2012). This situation may cause serious
troubles for the Suez and Panama Canals in particular, as their detour routes are very long.
Therefore, the arriving days of these waiting ships to their destinations are far beyond
estimation. Second, air transportation will be largely utilized to complement the cargos thatwill not arrive. During the U.S. West Coast ports disruption in 2014/15, considerable amountsof automotive and machinery parts, fresh foods, and other time-sensitive products were carriedby many aircrafts (Akakura et al, 2018). Third, the function of container hub ports, located at
the entrance of the chokepoints, will be seriously affected, resulting in, lowered traffic services
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and business opportunities in the ports of Singapore, Tanjung Pelepas, and Klang along the
Malacca Strait; the port of Port Said of the Suez Canal; and the ports of Balboa, Colon, andManzanillo of the Panama Canal. Once the traffic through a chokepoint is stopped, thecontainers that are scheduled to load to waiting ships at the other side of the closed chokepoint
will be piled up at the ports in the entrance of the chokepoint. Simultaneously, many ships will
be forced to wait at these ports to load the containers that have not arrived. After the elapse ofa certain period, many ships may navigate around the chokepoint and cancel their calling to theports. Kajitani et al (2013) estimated a negative impact of $4.7 billion on the global economy
by one-year closing of Singapore Port resulted by the Malacca Strait navigation closure. Fourth,traffic congestion at another chokepoint located on the detour route could occur. An example
may be congestion at the Panama Canal in the case of a Suez Canal blockade. Thus, some ships
may be forced to use other longer detour routes.
Based on the results of this study and considering the aforementioned points, we can assess the
economic impact of the closure of the maritime global critical infrastructures. An expected
result is that the economic impact of a sudden closure will be larger than the economic benefitsof the chokepoints estimated in this study because of the additional costs induced by the
aforementioned issues. However, the degree of this negative impact will rely on the risktreatment measures to be undertaken mainly by the littoral states. Therefore, burden sharing
schemes and risk management strategies should be formulated to minimize the impact ofchokepoint closures in the case of natural and man-made disasters, including serious maritime
accidents.
5.2. Management of Chokepoints
Notably, the maritime global critical infrastructures have brought enormous benefits to theworld trade and economy, thus indicating importance of maintaining and further developing
ship navigation safety in chokepoints in a sustainable manner. Additionally, since the growing
global economy will increase its dependence on navigation through these chokepoints, thecapacities of these navigation channels have to be expanded to accommodate the increasing
traffic volumes and vessel sizes.
The Suez and Panama Canals are directly operated and managed by canal authorities, while
the Malacca Strait is mainly controlled and maintained by the littoral countries under the Cooperative Mechanism. This fact can be seen in the differences in the driving forces forundertaking necessary actions to ensure the navigational capacity, efficiency, and safety. The
Suez Canal was expanded in 2015 to increase the canal capacity by expanding the two-way
track section, and also to allow the passage of larger ships: increasing the navigable container
ships in size from around 18,000 to 24,000 TEU. The third set of locks project of the Panama
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Canal from 2007 to 2016 provided additional larger traffic lanes and allowed for a larger
number of ships to pass through the canal, while simultaneously increasing the maximum sizeof the ships that could pass through the Canal; for example, the container ship size increased
from 5,000 to up to 14,000 TEU.
VLCCs can only pass through the Malacca Strait at high tide because of the International
Maritime Organization (IMO) recommendation that VLCCs shall always maintain an underkeel clearance of at least 3.5 meter during the entire passage through the strait. This is because
the water depth is about 23 meter in a few shallow sections of the strait, while the average ofmaximum drafts of 300,000-ton class tankers exceeds 21 meters. IMO conducted a real-timebasis monitoring study in terms of the under-keel clearance from 2013 to 2016. Then, thereliable tidal and wind monitoring systems including the automatic identification system (AIS)
data transmission capability were installed at six locations by Singapore and Malaysia. In
addition, the joint hydrographic survey of the strait for updating navigational charts with thenautical information to improve navigational safety was initiated by the littoral countries in
2017, under the support of the Malacca Strait Council of Japan. However, no physicalimprovement projects were carried out to allow larger ships to pass through the strait, such as
those completed in the Suez and Panama Canals in recent years. There is a possibility that achannel navigation management system, such as slot allocation and compulsory pilotage, will
be urgently needed to secure the navigational safety, as the number of VLCCs passing throughthe Malacca Strait increases continuously. In this situation, it may be an option to increase thebeneficiaries’ contributions, although many user countries already participate in the present
Co-operative Mechanism. Figure 10 shows the estimated results of GDP increase andequivalent variation (EV) for each region based on the impact of the Malacca Strait. The EVsof Northeast Asian countries (e.g., China, Japan, Taiwan, and South Korea) were much larger
than those of Southeast Asian ones, including three littoral countries (i.e., Singapore, Malaysia,
and Indonesia). Moreover, the EVs of regions such as South Asia, the Middle East, North
Europe, and the Mediterranean Sea were also fairly large.
For reference, Turkish government collects the transit fees from vessels passing through the
Bosporus Strait, which is one of the chokepoints in Figure 1, linking the Mediterranean Sea
and the Black Sea, to maintain and manage the navigational conditions of the strait. Although
there is no lock and slot reservation system in the Bosporus Strait, the fees are gathered throughthe ships' agents. Interestingly, there is a discussion regarding raising the fees for constructing
a new alternative route, “Istanbul Canal” (AP, 2011).

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30
20
15

GDP
EV

GDP/EV (bn$)

25

10
5
0

SAmer

NAmer

AfricaNEu
MedS

Oceania

SAsia
MEast

SEAsia-10

NEAsia-5

Figure 10 – Estimate Result of GDP Increase and EV of the Malacca Strait
6. Conclusion
This study estimates the economic benefits of major chokepoints: the Malacca Strait, the Suez
Canal, and the Panama Canal. The direct economic benefit is defined as the transport andinventory cost savings due to the availability of chokepoint navigation. First, a shortcut distance
table was created for each chokepoint and each sector, with sectors indicating the ship type andcorresponding cargo commodities, considering the ship size constraints of the Suez andPanama Canals. Then, the waterborne transportation cost savings between regions were
calculated based on the ship travel distance reductions, navigation speeds, operation costs, andnumber of ship sailings. In addition, the inventory carrying cost savings were calculated basedon the trade values and ship travel day reductions between regions, with the total of direct
benefits being the sum of the savings in waterborne transportation costs and inventory costs.
In addition, the overall economic benefit, including the ripple effect, was evaluated employing
the GTAP model.
The annual direct benefits were estimated at $46 billion for the Suez Canal and $21 billion for
the Malacca Strait and the Panama Canal in 2017. The transportation cost savings were larger
than the inventory cost savings, and the shares of containers were larger than those of bulk andtanker cargos in all chokepoints, especially in the Panama Canal. Additionally, the overall
economic benefits were estimated at 1.7 to 2.7 times of the direct benefits. The change rates ofregional GDPs greatly differed among regions; for example, the rate of Southeast Asia was thelargest for the Malacca Strait.
The contribution of this study to the maritime economic literature is as follows. First, this study
proposes a method for estimating the economic benefits of chokepoints in terms of all maritime

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cargos, and enables us to assess their impact on world trade and economy. Second, theestimated economic benefits imputed to the respective regions were used to discuss
beneficiaries’ contribution toward maintaining and further improving the navigational capacity,
efficiency, safety, and disaster resilience of these chokepoints.
As mentioned in section 5, the impact caused by chokepoint blockade on the global economy
was not fully addressed in this study. The authors would like to tackle this issue in a future
work, and assess and research its negative impact as well as the countermeasures; this isbecause the impact of a blockade may be much larger than the estimated benefit. This study
calculated the benefit based on the operating cost of the ship, which involves high volatility inthe costs of shipbuilding, bunker oil, and so on. Although the relative position between eachchokepoint does not change, sensitivity analysis may be required further to assess the effect of
this cost volatility.
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