The economic importance of the Straits of Malacca and Singapore: An extreme-scenario analysis

This paper proposes a decision tree model to estimate the loss to global economy on the hypothesis of an extreme scenario of blockade of the Straits of Malacca and Singapore. The insurance surcharges, inventory costs and the time values of cargoes, and Time Charter Equivalent rate are used to estimate the psychological loss, the loss to industries, and the loss to carriers, respectively. Interestingly, there is a pseudo-paradoxical phenomenon with respect to the loss to carriers. An illustrative example is also provided to explain the “Malacca Paradox”.

► Decision tree model is used to estimate the loss to global economy under the extreme-scenario.
► Discrete choice model are used to simulate the route choices of the ships.
► Malacca Paradox is identified and analyzed in this study.