- UNCTAD estimates that the weekly transits going through the Suez Canal decreased by 42 per cent over the last two months.
- The ongoing conflict in Ukraine has triggered substantial shifts in oil and grain trades, reshaping established trade patterns.
- Simultaneously, the Panama Canal, a pivotal conduit for global trade, is grappling with diminished water levels, resulting in a staggering 36 per cent reduction in total transits over the past month compared to a year ago.
The escalating geopolitical tensions and climate change related issues affecting key shipping routes are now threatening global trade, the United Nations Conference on Trade and Development (UNCTAD) has warned, with potential to curtail economic development mainly in poor countries.
The United Nations trade and development body has expressed concerns over the disruptions, particularly stemming geopolitical tensions affecting shipping in the Black Sea, recent attacks on shipping in the Red Sea affecting the Suez Canal and the impact of climate change on the Panama Canal.
This, as maritime transport remains the backbone of international trade, accounting for over 80 per cent of the global movement of goods.
Trade disruption in the Black Sea, the Panama Canal and the Suez Canal routes
“The recent attacks on Red Sea shipping, coupled with existing geopolitical and climate-related challenges, have given rise to a complex crisis affecting key global trade routes,” UNCTAD said in a statement.
It estimates that the weekly transits going through the Suez Canal decreased by 42 per cet over the last two months.
The ongoing conflict in Ukraine has triggered substantial shifts in oil and grain trades, reshaping established trade patterns.
Simultaneously, the Panama Canal, a pivotal conduit for global trade, is grappling with diminished water levels, resulting in a staggering 36 per cent reduction in total transits over the past month compared to a year ago.
The long-term implications of climate change on the canal’s capacity are raising concerns about enduring impacts on global supply chains.
The crisis in the Red Sea, marked by Houthi-led attacks disrupting shipping routes, has added another layer of complexity.
Major players in the shipping industry have temporarily suspended Suez transits in response.
Notably, container ship transits per week have plummeted by 67 per cent compared to a year ago, with container carrying capacity, tanker transits, and gas carriers experiencing significant declines.
The surge in the average container spot freight rates during the last week of December, by plus US$500, in one week, was the highest ever weekly increase.
Average container shipping spot rates from Shanghai are up by 122 per cent compared to early December, meaning they have more than doubled.
The rates from Shanghai to Europe more than tripled, going up by up to 256 per cent.
Rates to the United States West coast have also increased above average, although they do not go through Suez. They increased by 162 per cent.
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Global impact as ships avoids the Suez, Panama Canal
According to UNCTAD, the cumulative effect of these disruptions translates into extended cargo travel distances, escalating trade costs, and a surge in greenhouse gas emissions from shipping having to travel greater distances and at greater speed.
“Avoiding the Suez and Panama Canal necessitates more days of shipping, resulting in increased expenses,” UNCTAD said in an official communiqué.
Costs on containers have also escalated in the past one month, in the wake of an additional 40 per cent jump in operating costs by shipping lines, as the re-route to avoid the Red Sea.
The Container Price Sentiment Index by Container xChange, a technology firm in container trading and leasing, indicates that the recent developments have led to a rise in charges, ultimately pushing up freight costs.
For instance China, which is the primary import source for Kenya and other East African countries, has seen the highest prices on container leasing, reaching a high of $1,750.
In Europe, costs are averaging $1,340, up from $1,200 to $1,393 in August 2023.
Christian Roeloffs, co-founder & CEO of Container xChange, in an industry update noted that events in vital maritime passages like the Red Sea, Suez Canal, and Panama Canal have prompted swift responses from major shipping companies, impacting the container shipping sector.
Container xChange had reported potential disruptions and implications on the Suez Canal in October last year, following the start of the Israel–Hamas–Palestine conflict.
The shares of shipping lines have risen in anticipation of a post-Covid disruption revival, depending on how navies address the situation.
Yoni Essakov, from the Israeli Chamber of Shipping’s executive committee, mentioned that if voyages are extended, products with a shelf life of two to three months may not be worth importing from the Far East.
UNCTAD has also noted that the price per day of shipping and insurance premiums have surged, compounding the overall cost of transit.
Additionally, ships are compelled to travel faster to compensate for detours, burning more fuel per mile and emitting more carbon dioxide, further exacerbating environmental concerns.
Read also: Costly voyages: Will EAC shoulder the burden of Houthi rebels in the Red Sea?
UNCTAD on global implications on trade disruptions
UNCTAD underscores the far-reaching economic implications of these disruptions. Prolonged interruptions, particularly in container shipping, pose a direct threat to global supply chains, potentially leading to delayed deliveries and heightened costs.
While current container rates are approximately half of the peak during the Covid crisis, passing on higher freight rates to consumers takes time, with the full impact expected to manifest within a year.
Energy prices are witnessing a surge as gas transits are discontinued, directly impacting energy supplies, especially in Europe.
“The crisis is also reverberating in global food prices, with longer distances and higher freight rates potentially cascading into increased costs,” trade experts at UNCTAD said.
Disruptions in grain shipments from Europe, Russia, and Ukraine pose risks to global food security, affecting consumers and lowering prices paid to producers.
Read also: Oil&Gas opportunities abound for Africa amid Russia-Ukraine crisis
Impact on developing countries
Developing countries are particularly vulnerable to these disruptions and UNCTAD remains vigilant in monitoring the evolving situation, it said.
The organisation emphasizes the urgent need for swift adaptations from the shipping industry and robust international cooperation to navigate the rapid reshaping of global trade dynamics.
“The current challenges underscore trade’s vulnerability to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions especially in support of countries more vulnerable to these shocks,” it said.
The East African region is among those that remain exposed to high freight costs as shipping lines continue to avoid the Red Sea and Suez Canal.
The region is heavily served by the world’s leading container carrier, the Mediterranean Shipping Company (MSC), and second-placed Maersk, which in December started re-routing vessels to avoid attacks.
Given the security situation in the Red Sea and to ensure the safety of our crew, MSC ships are not transiting the Suez Canal Eastbound and Westbound until Red Sea passage is safe again, management said.
“Redirecting all vessels via the Cape has impacted global shipping networks. Therefore, MSC is adapting its East-West routes to manage this disruption.As such, rotations will be changed and vessels will be added to limit the disruption on sailing schedule of the rerouting via the Cape,” it said.
