(GENEVA) — The United Nations Conference on Trade and Development (UNCTAD) has released “Navigating Troubled Waters: Impact to Global Trade of Disruption of Shipping Routes in the Red Sea, the Black Sea and the Panama Canal,” detailing how attacks have severely affected shipping through the Suez Canal, added to existing geopolitical and climate-related challenges, and are reshaping the world’s trade routes.
Disrupting the lifelines of the world
In the wake of recent attacks on shipping, the Red Sea’s trade routes through the Suez Canal have become severely disrupted further impacting the global trade landscape. This development compounds the ongoing disruption in the Black Sea due to the war in Ukraine, which has resulted in shifts in the oil and grain trade routes, altering established patterns.
Additionally, the Panama Canal, a critical artery linking the Atlantic and Pacific oceans, is confronting a separate challenge: dwindling water levels. Diminished water levels in the canal have raised concerns about the long-term resilience of global supply chains, underscoring the fragility of the world’s trade infrastructure.
UNCTAD estimates that transits through the Suez Canal have decreased by 42 percent compared to its peak. With major players in the shipping industry temporarily suspending Suez transits, weekly containership transits have fallen by 67 percent and container carrying capacity, tanker transits and gas carriers have experienced significant declines. Meanwhile, total transits through the Panama Canal plummeted by 49 percent compared to its peak.
Costly uncertainty
Mounting uncertainty and shunning the Suez Canal to reroute around the Cape of Good Hope are having an economic and environmental cost, also representing additional pressure on developing economies.
Growing significantly since November, the surge in the average container spot freight rates registered the highest weekly increase in the last week of December. Average container shipping spot rates from Shanghai more than doubled since early December (up 122 percent), growing more than threefold to Europe (up 256 percent) and even above average (up 162 percent) to the U.S. West Coast, despite not going through Suez.
Ships are avoiding the Suez and the Panama canals and seeking alternative routes. This combination translates into longer cargo travel distances, rising trade costs and higher insurance premiums. Furthermore, greenhouse gas emissions are also growing from having to travel greater distances and at greater speed to compensate for the detours.
The Panama Canal is particularly important for the foreign trade of countries on the west coast of South America. Approximately 22 percent of total Chilean and Peruvian foreign trade volumes depend on the canal. Ecuador is the country most dependent on the canal, with 26 percent of its foreign trade volumes crossing the waterway.
Foreign trade for several East African countries is highly dependent on the Suez Canal. Approximately 31 percent of foreign trade by volume for Djibouti is channeled through the Suez Canal. For Kenya, the share is 15 percent, and for Tanzania it is 10 percent. Among East African countries, foreign trade for the Sudan depends the most on the Suez Canal, with about 34 percent of its trade volume crossing the waterway.
Soaring prices
UNCTAD underscores the potential far-reaching economic implications of prolonged disruptions in container shipping, threatening global supply chains and potentially delaying deliveries, causing higher costs and inflation. The full impact of higher freight rates will be felt by consumers within a year.
In addition, energy prices are surging as gas transits are discontinued and directly impacting energy supplies and prices, especially in Europe. The crisis could also potentially impact global food prices, with longer distances and higher freight rates potentially cascading into increased costs. Disruptions in grain shipments from Europe, Russia and Ukraine pose risks to global food security, affecting consumers and lowering 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 in key trade routes like the Red Sea and Suez Canal, coupled 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 that higher fuel consumption resulting from longer distances and higher speeds could result in up to 70 percent rise in greenhouse gas emissions for a Singapore-Rotterdam round trip.
Pressure on developing economies
Developing countries are particularly vulnerable to these disruptions and UNCTAD remains vigilant in monitoring the evolving situation.
The organization emphasizes the urgent need for swift adaptations from the shipping industry and robust international cooperation to manage the rapid reshaping of global trade. The current challenges underscore the exposure of global trade to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions especially in support of countries more vulnerable to these shocks.
About UNCTAD
UNCTAD is the United Nations trade and development body. It supports developing countries to access the benefits of a globalized 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.
– United Nations Conference on Trade and Development
