Warns escalating attacks on ships in Red Sea are adding strain to shipping routes already hit by conflict and climate change
MV Marlin Luanda hit in the Red Sea by a missile fired by Houthis
PHOTO CREDIT: INDIAN NAVY/X
The UN’s trade and development body UNCTAD has raised profound concerns over escalating disruptions to global trade.
It says that the recent attacks on ships in the Red Sea, combined with geopolitical tensions affecting shipping in the Black Sea and the impacts of climate change on the Panama Canal, have given rise to a complex crisis affecting key trade routes.
UNCTAD Head of Trade Logistics Jan Hoffmann outlined the organisation’s detailed analysis of the situation at the UN’s daily press briefing end last week. He underlined maritime transport’s critical role in international trade, noting that it is responsible for approximately 80 percent of the global movement
of goods.
Disruptions in Black Sea and Panama and Suez Canals
The Suez Canal, a critical waterway connecting the Mediterranean Sea to the Red Sea, handled approximately 12 percent to 15 percent of global trade in 2023. UNCTAD estimates that the trade volume going through the Suez Canal decreased by 42 percent over the last two months.
The ongoing conflict in Ukraine has also triggered substantial shifts in oil and grain trades, reshaping established
trade patterns.
Meanwhile, the Panama Canal, another key artery for global trade, is grappling with a severe drought that has diminished water levels, resulting in a staggering 36 percent 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.
Container ship transits plummet as freight rates and emissions surge
In response to the Red Sea crisis, major players in the shipping industry have temporarily suspended Suez transits.
Notably, weekly container ship transits have plummeted by 67 percent. Tanker transits and gas carriers are also experiencing significant declines.
Meanwhile, shipping prices are increasing. The US $ 500 surge in the average container spot freight rates during the last week of December was the highest ever weekly increase.
The average container shipping spot rates from Shanghai have more than doubled (+122 percent) since early December. More specifically, the rates from Shanghai to Europe have more than tripled (+256 percent), while the rates to the west coast of the United States increased by 162 percent, although the ships on this route do not go through the Suez Canal.
Insurance premiums have also surged, compounding the overall cost of transit.
Additionally, the ships rerouted from the Suez and Panama Canal routes are compelled to travel faster to compensate for detours, burning more fuel per mile and emitting more CO2, further exacerbating
environmental concerns.
“Here we see the global impact of the crisis, as ships are seeking alternative routes,” Hoffmann said.
Global implications: Increases in energy and food prices
The UNCTAD underscored the far-reaching economic implications of
these disruptions.
Prolonged interruptions, particularly in container shipping, pose a direct threat to global supply chains, raising the risk of delayed deliveries and higher costs.
While the current container rates are approximately half of the peak seen during the COVID-19 crisis, it will take time for the higher prices to hit consumers, with the full impact expected within a year.
The energy prices are witnessing a surge as gas transits are discontinued, directly impacting energy supplies, especially
in Europe.
The crisis is also impacting global food prices, with longer distances and higher freight rates potentially cascading into increased costs. Disruptions in grain shipments from Europe, the Russian Federation and Ukraine pose risks to global food security, affecting consumers and lowering the prices paid to producers.
Impact on developing countries and need for collective action
“Developing countries are particularly vulnerable to these disruptions and the UNCTAD remains vigilant in monitoring the evolving situation,” Hoffmann said.
The organisation emphasised 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 the trade’s vulnerability to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions, especially in support of the countries more vulnerable to these shocks.
