The United Nations Conference on Trade and Development (UNCTAD) published this Thursday (22.02.2024) the document “Navigating through turbulent watersIn the report, the Agency warns of the impact that the disruption of key maritime routes in the Red Sea, the Black Sea and the Panama Canal has on global trade. It points out how the attacks in the Red Sea that have severely affected maritime transport through the Suez Canal, coupled with existing geopolitical and climatic challenges, are reshaping the world's trade routes.
Following the recent attack on shipping, Red Sea trade routes through the Suez Canal have been severely disrupted, further affecting the global trade outlook. This development exacerbates the ongoing disruption in the Black Sea due to the war in Ukraine, which has led to changes in oil and grain trade routes, disrupting established patterns.
Moreover, the Panama Canal, a critical artery linking the Atlantic and Pacific oceans, faces a different challenge: declining water levels that have raised concerns about the long-term resilience of global supply chains, underscoring the fragility of the world’s trade infrastructure.
In this regard, UNCTAD estimates that transits through the Suez Canal have decreased by 42% compared to their peak. With major players in the shipping industry temporarily suspending movements in Suez, weekly container ship transits have fallen by 67%, and container carrying capacity, tanker circulation and gas carriers have experienced significant declines. Meanwhile, total transits through the Panama Canal have plummeted by 49% compared to their peak.
Costly uncertainty
Growing uncertainty and the Suez Canal's refusal to reroute around the Cape of Good Hope are taking an economic and environmental toll, while also putting additional pressure on developing economies.
With significant growth since November 2023, average spot container freight rates recorded the largest weekly increase ever, with a USD 500 increase in the last week of December. This trend has continued. Average spot container freight rates from Shanghai more than doubled since the beginning of December (+122%), tripling through Europe (+256%) and even above average (+162%) to the US West Coast, despite bypassing Suez.
Ships are avoiding the Suez and Panama Canals and seeking alternative routes. This combination translates into longer cargo journey distances, increased trade costs and insurance premiums. In addition, greenhouse gas emissions are also rising as they have to travel longer distances and at higher speeds to compensate for the detours.
El Panama Canal andIt is particularly important for the foreign trade of the countries on the west coast of South AmericaApproximately 22% of total volumes of cChilean and Peruvian foreign trade depend on the Canal. Ecuador is the country most dependent on the Canal, with 26% of its foreign trade volumes crossing it.
The foreign trade of several East African countries is highly dependent on the Suez Canal. About 31% of Djibouti's foreign trade volume is channelled through the Suez Canal. For Kenya, the share is 15% and for Tanzania, 10%. Among East African countries, Sudan's foreign trade is the most dependent on the Suez Canal, with about 34% of its trade volume passing through it.
Upward prices
UNCTAD underlines the potentially far-reaching economic consequences of prolonged disruptions to container shipping, which threaten global supply chains and may delay deliveries, leading to higher costs and inflation. Consumers will feel the full impact of higher freight rates within a year.
In addition, energy prices are rising as gas transits are disrupted, which also directly affects supply, especially in Europe. In addition, the crisis could alter global food prices, as longer distances and higher freight rates would lead to higher costs. Disruptions in grain shipments from Europe, Russia and Ukraine pose risks to global food security, affecting consumers and reducing prices paid to producers.
Climate impact
For more than a decade, the shipping industry has adopted reduced speeds to lower fuel costs and address greenhouse gas emissions. However, disruptions to key trade routes such as the Red Sea and Suez Canal, along with factors affecting the Panama Canal and Black Sea, are leading to increased vessel speeds to maintain schedules, resulting in higher fuel consumption and greenhouse gas emissions.
UNCTAD estimates, for example, that higher fuel consumption as a result of longer distances and higher speeds could result in an increase of up to 70% in greenhouse gas emissions for a round trip from Singapore to Rotterdam.
Pressure on developing economies
Developing countries are particularly vulnerable to these shocks and UNCTAD said it remains vigilant in monitoring developments.
The organization stressed the urgent need for rapid adaptations and strong international cooperation by the shipping industry to manage the rapid reshaping of global trade. Current challenges highlight the exposure of global trade to geopolitical tensions and climate-related challenges, which requires Collective efforts to find sustainable solutions, especially in support of the countries most vulnerable to these shocks. (Report)
Aduana News is the first Argentine customs newspaper to launch its digital version. With 20 years of experience, its publications and initiatives aim to provide the most relevant knowledge on customs issues in order to contribute to safe trade in the region.
