— Signed Article by Huang Youfang, Chairman of the Top 50 Shipping Elites Research Center (50SERC), Published in Management Vision

Editor’s Note

Just as this article was about to be published, the situation surrounding the Strait of Hormuz experienced two dramatic shifts.

According to Xinhua News Agency, on July 13, U.S. President Donald Trump announced that the United States would resume a maritime blockade against Iran and impose a 20% fee on all goods transported through the Strait of Hormuz. He also formally notified Congress that the conflict with Iran had resumed.

Less than 24 hours later, the situation changed again. On July 14, Trump stated that, based on discussions with Middle Eastern leaders, the 20% fee would be replaced by trade and investment agreements between Gulf countries and the United States. He also said that the Strait of Hormuz would remain open to all vessels except those traveling to or from Iranian ports or carrying Iran-related cargo.

A waterway carrying approximately one-fifth of global oil shipments and around 40% of China’s imported crude oil supply could see its operational status and pricing mechanisms altered overnight by several social media posts. Although the proposed fee was removed, tensions remain unresolved; although the scope of restrictions has narrowed, uncertainty continues.

The deeper concern lies in this volatility itself. When the survival of a production line and the energy security of a country can depend on unpredictable decisions made thousands of miles away, it becomes more important than ever to ask: How vulnerable is the global logistics network supporting China’s economic development, and how can its resilience be strengthened?

Author Huang Youfang, who has worked in ports, shipping and logistics research for nearly four decades and previously served as President of Shanghai Maritime University, believes that today’s challenges are not simply caused by disruptions to a single route. Instead, they represent a form of “systemic vulnerability” caused by simultaneous pressure on multiple strategic channels, geopolitical fragmentation and technological transformation.

In his view, uncertainty itself has become the “new normal.” The transition from cost and efficiency priority to security priority, and from merely “managing supply chains” to “strengthening supply chains,” represents not only crisis response but also a fundamental transformation concerning national supply chain security.

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Systemic Vulnerability of Maritime Chokepoints

More Than One Strait of Hormuz

If we only focus on the Strait of Hormuz, we underestimate the true significance of the current crisis.

After nearly 40 years of research and teaching in shipping, ports and logistics, I have witnessed disruptions caused by the Iran-Iraq War, the impact of SARS and COVID-19 on supply chains, and the global shipping diversions triggered by the Red Sea crisis.

The situation today is unprecedented in modern shipping history. It is not simply a blockage of one route, but rather simultaneous pressure on multiple strategic channels, combined with geopolitical fragmentation and technological transformation.

This requires us to move beyond short-term crisis management and reassess global logistics networks from the strategic perspective of China’s supply chain security.

The Systemic Vulnerability of Maritime Chokepoints

Global maritime trade depends heavily on several key geographic chokepoints, including the Strait of Hormuz, Suez Canal, Bab el-Mandeb Strait, Malacca Strait, Strait of Gibraltar and Panama Canal.

In the past, these routes were viewed as independent risk points: if one route was blocked, vessels could simply divert through another. However, the reality in 2026 shows that this assumption is no longer valid.

Since the Red Sea crisis began in late 2023, vessel traffic through the Bab el-Mandeb Strait has fallen significantly and has not returned to normal levels. Meanwhile, the Strait of Hormuz has been severely affected by conflicts in the Middle East.

For the first time in history, two major maritime energy corridors connecting Asia and Europe have simultaneously experienced functional disruption. Diverting around the Cape of Good Hope has become unavoidable, increasing voyage times by one to two weeks, reducing available capacity and driving up freight rates and insurance costs.

China is particularly sensitive to such disruptions. Around 40% of China’s crude oil imports in 2024 passed through the Strait of Hormuz, while Iran remained China’s largest source of methanol imports, accounting for approximately 50%–60% of China’s total methanol imports.

The potential for pipeline substitution remains limited. Only Saudi Arabia and the United Arab Emirates have crude oil pipelines capable of bypassing the Strait, but their combined replacement capacity is far below the Strait’s daily transportation volume of approximately 20 million barrels.

Although the China-Russia crude oil pipeline and Central Asian natural gas pipelines provide additional support, their capacity remains far smaller than maritime transportation.

A fact that should not be overlooked is that maritime transport handles more than 90% of China’s international trade volume.

In 2025, Chinese ports handled 350 million TEUs of containers, maintaining their leading global position. Although the China-Europe Railway Express has developed rapidly, with more than 20,000 trains operated in 2025, its cargo volume remains only a fraction of maritime transportation.

The China-Europe Railway Express can provide emergency support when maritime routes are disrupted, but maritime transport remains the backbone of China’s exports and global connectivity.

The security of maritime routes is therefore not only China’s economic security, but also a key component of global economic stability.

From Cost Efficiency Priority to Security Priority

A Fundamental Transformation of the Supply Chain Paradigm

Over the past three decades, the core logic of global supply chain management has been centered on cost and efficiency. Concepts such as just-in-time (JIT) production, zero inventory, global optimal allocation and end-to-end cost control have operated effectively under a relatively stable international environment.

However, this approach relied on an implicit assumption: maritime transportation would remain safe and freely accessible.

This assumption is now being challenged.

During the outbreak of COVID-19 in 2020, I proposed that global supply chains were undergoing a profound transition from a “cost and efficiency-oriented model” toward a “security-oriented model.”

At that time, I emphasized that security is the foundation of supply chain openness and stability; stability is the basis for supply chain security and openness; and openness represents the future of supply chain stability and security.

The relationship among security, stability and openness must be accurately understood.

Six years later, this judgment has not become outdated. Instead, it has continued to be validated and strengthened.

After the pandemic, I also predicted that the “bullwhip effect” within supply chains would become increasingly prominent. The trend of resource integration and sharing within supply chains may be reversed: core enterprises will seek greater ownership and control over upstream and downstream resources rather than outsourcing everything as they did in the past.

Today, geopolitical disruptions are accelerating this trend. Concepts such as friend-shoring, nearshoring and strategic reserves of critical materials have moved from academic discussions into government policies and corporate boardroom strategies.

However, it should be recognized that a shorter and simpler supply chain does not necessarily mean a better supply chain.

Reducing supply chain length may lower disruption risks, but it may also sacrifice efficiency and cost advantages. The real challenge lies in achieving a dynamic balance between security and efficiency.

For China, this challenge is particularly complex. As the world’s largest manufacturing country and a major trading nation, China has developed one of the world’s largest and most complex supply chain networks.

China must ensure the security of critical resources, including energy, food and semiconductors, while avoiding a return to a closed and self-sufficient model.

Building a supply chain system that is both secure and open under the framework of the dual circulation development strategy has become one of the most important strategic challenges.

From Global Division of Labor to Regional Integration

Regional Restructuring of Supply Chain Networks

Faced with geopolitical pressures and tariff barriers, some Chinese enterprises have transferred final assembly operations to regions such as Southeast Asia—including Vietnam and Indonesia—or Latin America, including Mexico.

This has created a notable trend: China is no longer directly exporting finished products to final consumer markets such as the United States and European countries. Instead, China is increasingly exporting key components, machinery products and complete equipment to new manufacturing bases, where final assembly is completed before products are exported.

This phenomenon should not simply be defined as “deglobalization.” It is more accurately described as “reglobalization”or “regional internationalization.”

Global trade is evolving from a “hub-and-spoke” model centered around a single global manufacturing base into a multi-centered network consisting of three major regional hubs: Asia-Pacific, North America and Europe.

Currently, intra-regional trade accounts for nearly 60% of total trade within Asia, while intra-European trade accounts for approximately 65%, supporting this trend.

From the perspective of supply chain security, China, as the core of the Asia-Pacific supply chain network, should respond strategically to indirect cross-regional dependencies and accelerating localization efforts in Europe and the United States.

Three strategic approaches are particularly important:

First, upgrading components toward higher-end manufacturing and moving from scale advantages toward irreplaceability.

Although the United States and Europe are promoting nearshoring of final assembly, they remain dependent on China due to China’s complete industrial ecosystem.

China should increase investment in core components, advanced manufacturing processes and key materials, transforming external dependence from traditional low- and medium-value products into dependence on high-value and irreplaceable technologies.

Second, strengthening regional integration and deeply embedding China within the Asia-Pacific supply chain network.

As some final manufacturing activities move toward Southeast Asia, China should retain research and development capabilities, advanced manufacturing and core intermediate product production domestically.

Third, developing logistics soft power and using digital technologies to strengthen supply chain control.

China should not only remain a global manufacturing center but also become the “coordination hub” of regional and global supply chains by building one of the world’s most efficient supply chain management systems.

Diversification of Transport Corridors

Do Not Put All Eggs in One Basket

Facing vulnerabilities in maritime chokepoints, China’s response should focus on transport corridor diversification.

The China-Europe Railway Express represents one of the most successful examples.

By November 2025, the China-Europe Railway Express had operated more than 120,000 trains in total, transporting goods valued at over USD 490 billion.

Currently, 128 Chinese cities have launched China-Europe Railway Express services, connecting with 26 European countries and 232 cities, as well as more than 100 cities across 11 Asian countries.

In 2025, annual operations exceeded 20,000 trains for the first time, reaching 20,008 trains.

A particularly noteworthy test occurred in September 2025. At that time, Poland temporarily closed road and railway crossings with Belarus due to joint military exercises between Russia and Belarus. The main route of the China-Europe Railway Express was disrupted, leaving approximately 300 trains stranded in Belarus.

Although border crossings reopened two weeks later, the incident once again demonstrated the vulnerability of relying on a single transportation route.

The rise of the Trans-Caspian International Transport Route is also attracting attention.

Connecting China’s Xinjiang region with Kazakhstan, the Caspian Sea, Azerbaijan and Europe, this route provides a strategic alternative connection between China and Europe without passing through Russia.

In 2025, the southern route of the China-Europe Railway Express operated 456 trains, increasing 21% year on year, making it the fastest-growing route among all corridors.

The strategic value of the China-Europe Railway Express is changing.

Previously regarded as a supplement to maritime transportation, it is increasingly becoming a strategic backup option.

When the Strait of Hormuz and Red Sea routes face simultaneous disruptions, and Asia-Europe maritime routes are forced to detour around the Cape of Good Hope, extending voyages significantly, the China-Europe Railway Express—with transportation times of 10–12 days between China and Europe—demonstrates unique strategic value.

However, it must also be recognized that railway capacity remains fundamentally different from maritime transport.

A single train can carry dozens of containers, while a large container vessel can transport tens of thousands of TEUs.

The China-Europe Railway Express can support high-value cargo transportation and provide emergency capacity during maritime disruptions, but it cannot replace the fundamental role of ocean shipping.

The real objective should be establishing a diversified international logistics network featuring:

maritime transport as the backbone, rail transport as a supplement, and pipelines as additional support.

Within this system, the connection between ports and railways—namely sea-rail intermodal transport—is a key area requiring further improvement.

Issues such as railway access to ports and integrated operations between inland rail hubs and coastal ports require systematic research and development.

Digitalization and Intelligence Transformation

A New Engine for Supply Chain Evolution

When discussing supply chain security, we cannot overlook the two forces that are profoundly reshaping the industry: digitalization and intelligent technologies.

China has already taken a leading position in the development of smart ports worldwide. By the end of August 2025, China had built 23 automated container terminals and 29 automated dry bulk terminals, ranking first globally in terms of both completed and under-construction automated terminals.

Chinese ports continue to set and maintain global records for automated container handling efficiency. In May 2025, the average productivity of quay cranes at Qingdao Port’s automated terminal achieved a new world record for the 13th time, reaching 62.62 containers per hour per crane.

Examples such as Shanghai Port Yangshan Phase IV Automated Terminal, Qingdao Port Automated Terminal, and Shenzhen Mawan Port’s 5G-enabled autonomous driving system have become globally recognized models of smart port development.

Among them, Mawan Port, as the world’s first large-scale 5G-enabled autonomous driving port area, reduced operational personnel by 65%, improved operational efficiency by 50%, and reduced logistics costs for enterprises in the Guangdong-Hong Kong-Macao Greater Bay Area by approximately 30%.

Smart port technologies developed by Shanghai Port have also been successfully applied overseas, including at Chancay Port in Peru, providing a “Chinese solution” for global smart port development.

The application of large artificial intelligence models in logistics and supply chains is also accelerating.

Through large AI models, logistics companies can achieve more advanced strategic planning, more accurate demand forecasting, more efficient capacity allocation and more transparent end-to-end tracking.

Technologies such as digital containers, electronic bills of lading and blockchain-based traceability are reshaping the fundamental logic of international trade and logistics.

However, I would also like to highlight a paradox:

A highly digitalized supply chain may become more vulnerable under extreme circumstances.

The seabed beneath the Strait of Hormuz contains important communication cables connecting the Middle East and Asia, carrying a significant proportion of global intercontinental internet traffic.

In 2008, damage to submarine cables in the Persian Gulf disrupted internet services in several countries.

Under unforeseen extreme conditions, damage to these cables could interrupt not only physical shipping operations but also digital systems for logistics coordination and operational management.

Therefore, while pursuing supply chain digitalization, we must also consider the physical security of digital infrastructure and establish redundant communication systems.

Digitalization is not a universal solution. It must be combined with physical security measures.

A truly intelligent supply chain should not only operate faster and more accurately under normal conditions, but also maintain sufficient resilience and recovery capability during extreme disruptions.

From Managing Supply Chains to Strengthening Supply Chains

Upgrading Management Perspectives

Looking back at the repeated disruptions experienced by global supply chains in recent years, one fundamental understanding must change:

Supply chains are no longer merely issues of corporate operational management. They have become strategic matters affecting national security, geopolitical competition and corporate survival.

Managers must shift from simply “managing supply chains” to “strengthening supply chains.”

“Managing supply chains” focuses on the operational level, including optimizing inventory, reducing costs and improving turnover efficiency.

“Strengthening supply chains” requires a strategic approach, including assessing systemic risks, developing diversified transportation routes, establishing strategic reserves of critical materials and participating in the formulation of international supply chain governance rules.

For business leaders, I would like to propose several recommendations.

First, reassess dependence on key maritime routes.

Companies should evaluate what proportion of their raw materials relies on strategic waterways such as the Strait of Hormuz, the Suez Canal or the Malacca Strait.

If these routes were disrupted simultaneously for two months, how long could production continue?

Such questions should now become part of corporate risk assessment systems.

Second, maintain appropriate redundancy while pursuing cost and efficiency.

Zero inventory was an advantage during stable periods, but it may become a critical weakness during crises.

Maintaining reasonable safety stock for key materials and establishing dual-route or even multi-route transportation options are necessary investments under today’s global environment.

Third, actively embrace digitalization but avoid overreliance on technology.

Companies should use data to support decision-making and technology to improve efficiency while preparing contingency plans for potential failures of digital systems.

Fourth, pay attention to changes in international supply chain governance rules.

International standards for electronic bills of lading, the development of green shipping corridors and carbon accounting mechanisms may appear distant, but they are fundamentally reshaping the rules of global trade and logistics.

Chinese enterprises should not merely accept these rules; they should actively participate in shaping them.

Seeking Certainty amid Uncertainty

The tensions surrounding the Strait of Hormuz will eventually subside, but uncertainty in global supply chains has become a new normal.

From the COVID-19 pandemic to the Red Sea crisis, from semiconductor shortages to tariff barriers, disruptions are becoming more frequent, more severe and increasingly interconnected.

Under these circumstances, China’s supply chain system needs to achieve upgrades in three dimensions:

At the physical level, China should establish diversified transportation networks with sufficient redundancy.

At the technological level, China should use digitalization and intelligent technologies to improve supply chain visibility and responsiveness.

At the institutional level, China should develop emergency supply chain governance mechanisms and international coordination systems.

China needs not only strong fleets and ports, but also strategic capabilities to safeguard maritime routes and maintain global supply chain stability.

The ocean has never followed human plans, but those who prepare well will always reach the destination earlier than others.

Source:
Management Vision, Issue No. 45, Fudan Business Knowledge