In the wake of recent attack to shipping, the Red Sea's maritime 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 the oil and grain trade routes, altering established patterns.
Explained: How Houthis Attacks Are Disrupting the Lifelines of The World?
New Delhi (ABC Live): Maritime transport, the
backbone of international trade, is responsible for 80% of the global movement
of goods.
Attacks on shipping affecting the
Suez Canal add to geopolitical tensions impacting shipping routes in the Black
Sea, and severe drought due climate change disrupting shipping in the Panama
Canal.
The UN
Conference on Trade and Development (UNCTAD) has released “Navigating Troubled Waters. The Impact to Global Trade
of Disruption of Shipping Routes in the Red Sea, The Black Sea and the Panama
Canal” signaling how attacks on Red Sea shipping which have
severely affected shipping through the Suez Canal, added to existing
geopolitical and climate-related challenges, are re shaping the worlds’ trade
routes.
Disrupting the lifelines of the
world
In the
wake of recent attack to shipping, the Red Sea's maritime 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 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 passing the Suez Canal decreased by 42% compared to its
peak. With major players in the shipping industry temporarily suspending Suez
transits, weekly container ship transits have fallen by 67%, and container
carrying capacity, tanker transits, and gas carriers have experienced
significant declines. Meanwhile, total transits through the Panama Canal
plummeted by 49% compared to its peak.
Costly uncertainty
Mounting
uncertainty and shunning the Suez Canal to reroute around the Cape of Good Hope
is having both an economic and environmental cost, also representing additional
pressure on developing economies.
Growing
significantly since November 2023, the surge in the average container spot
freight rates registered the highest ever weekly increase growing by US 500,-
in the last week of December. This trend has continued. Average container
shipping spot rates from Shanghai more than doubled since early December
(+122%), growing more than threefold to Europe (+256%), and even above average
(+162%) to the United States 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 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% of total Chilean and
Peruvian foreign trade volumes depend on the Canal. Ecuador is the country most
dependent on the Canal with 26% per cent of its foreign trade volumes crossing
the Canal.
Foreign
trade for several East African countries is highly dependent on the Suez Canal.
Approximately 31% of foreign trade by volume for Djibouti is channeled through
the Suez Canal. For Kenya, the share is 15%, and for Tanzania it is 10%. Among
East African countries, foreign trade for the Sudan depends the most on the
Suez Canal, with about 34 per cent of its trade volume crossing the Canal.
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 which have 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% 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.