World trade recovery at risk amid shipping routes disruptions, warns UNCTAD

ONGOING DISRUPTIONS to significant shipping routes continue to threaten the projected recovery of global trade following several quarters of decline.

While the forecast for 2024 is considered “broadly positive”, logistical challenges related to shipping disruptions in key shipping routes, including the Panama Canal, could result in increased costs and disrupt supply chains, according to the latest Global Trade Update by the United Nations Conference and Trade and Development (UNCTAD).

International trade declined by three per cent, or approximately US$1 trillion, in 2023, driven by a five per cent fall in trade in goods.

Despite the overall decline, there were some positive performances, including an eight per cent growth in trade in services and a nearly 40 per cent surge in tourism and travel-related services post-pandemic.

“During 2023, trade performance diverged between developing and developed countries, with the former experiencing a decline of approximately four per cent and the latter around six per cent,” UNCTAD revealed in a release last week.

Developing countries experienced a sharper decline in trade, with their imports and exports falling by five per cent and seven per cent, respectively, compared to a four per cent drop in imports and three per cent in exports for developed nations, according to UNCTAD’s report.

This position could persist with concurrent disruptions in two major global maritime trade waterways, with far-reaching implications for inflation and food and energy security.

Attacks on ships in the Red Sea since November 2023, coupled with the ongoing war in Ukraine affecting the Black Sea and climate-related droughts plaguing the Panama Canal, important channels crucial for global trade, have faced significant disruptions, UNCTAD stated, adding that the repercussions of these challenges are evident in the decline in monthly transits. Both the Suez and Panama Canals have experienced significant drops of over 40 per cent in transits from their peak volumes.

The fourth-quarter performance of 2023 marked a departure from previous quarters, with both merchandise and services trade stabilising quarter-over-quarter. Developing countries, especially those in the African, East Asian and South Asian regions, experienced growth in trade during this period, the UN body shared.

“Available data for the first quarter of 2024 suggests a continued improvement in global trade, especially considering moderating global inflation and improving economic growth forecasts. Additionally, rising demand for environmental goods, particularly electric vehicles, is expected to bolster trade this year,” UNCTAD stated.

“However, geopolitical tensions and supply chain disruptions persist as pivotal factors influencing bilateral trade trends and require ongoing scrutiny. Disruptions in shipping routes, particularly those related to security issues in the Red Sea and the Suez Canal, as well as adverse climate effects on water levels in the Panama Canal, carry the potential to escalate shipping costs, prolong voyage times and disrupt supply chains.”

UNCTAD supports developing countries to access the benefits of a globalised economy more fairly and effectively, and equips them to deal with the potential drawbacks of greater economic integration. It provides analysis, facilitates consensus-building and offers technical assistance to help developing countries use trade, investment, finance and technology as vehicles for inclusive and sustainable development.