Global trade strained as major shipping routes face disruptions

TWO CRITICAL global maritime trade routes are grappling with disruptions, setting the stage for potential repercussions on inflation, food, and energy security worldwide.

This according to a recent report Navigating troubled waters: Impact to global trade of disruption of shipping routes in the Red Sea, Black Sea and Panama Canal by the United Nations Conference on Trade and Development (UNCTAD).

Since November 2023, escalating attacks on ships in the Red Sea, compounded by the war in Ukraine affecting the Black Sea and climate-induced droughts hitting the Panama Canal, have significantly impacted these crucial waterways. The subsequent plunge in monthly transits highlights the severity of the situation.

Transits through both the Suez and Panama Canals have plummeted by over 40 per cent from their peaks. Notably, the decline in the Suez Canal occurred primarily in the last two months, while Panama Canal transits have steadily decreased over the last two years.

The Suez Canal, a crucial shortcut for shipping between Europe and Asia, witnessed a decline in transits by 22 per cent in 2023. Approximately 22 per cent of global seaborne container trade traverses the canal, ferrying goods like natural gas, oil, cars, and raw materials. However, the risk of Red Sea attacks has led to a shift in shipping routes, with 586 container vessels rerouted by early February 2024, causing an 82 per cent decrease in container tonnage crossing the canal.

At the same time, the Panama Canal faces disruptions due to climate-induced droughts, compelling the Panama Canal Authority to reduce daily transits from an average of 36 to 22, with plans for further reductions to 18 per day. The canal is crucial for countries on the West Coast of South America.

These disruptions have far-reaching economic consequences. The Suez Canal has seen a 40 per cent drop in revenues due to the Red Sea crisis.

The war in Ukraine has exacerbated the trend of increasing distances for maritime cargo, impacting oil and grain trades. More oil tankers are rerouting through the Cape of Good Hope, car-carrying ships in the Red Sea have decreased, and liquefied natural gas vessels are avoiding the Suez Canal, leading to a spike in gas prices.

The disruptions in the Red Sea and Suez Canal, combined with factors linked to the Panama Canal and the Black Sea, could undermine environmental gains achieved through ‘slow steaming’. Rerouted vessels are increasing speeds, resulting in higher carbon emissions.

These disruptions are not only affecting environmental sustainability but also hitting shipping costs. Container freight rates on Asia-Pacific to Europe routes have sharply risen since November 2023, with a record weekly spike of US$500 in late December 2023. Average container shipping spot rates from Shanghai in early February 2024 more than doubled compared to early December 2023.

While the current impact hasn’t reached the scale of the pandemic-induced crisis of 2021-2022, UNCTAD is closely monitoring the situation. The war in Ukraine has already demonstrated how longer distances and higher freight rates can affect food prices. Monitoring key developments, including shipping schedules, security measures, delays, and increased freight rates, is crucial for assessing potential implications for transport and trade, particularly for developing countries.