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UNCTAD warns of disruptions on shipping routes for global trade

Ships are seen at Saleef port in the western Red Sea Hodeida province, on May 13, 2019. (Photo: AFP)

By Bashir Mohammed | Monday, February 26, 2024

The Red Sea, a crucial waterway connecting the Indian Ocean to the Suez Canal and the Mediterranean Sea, has witnessed a surge in attacks by Houthi militants.

The United Nations Conference on Trade and Development (UNCTAD) has raised concerns about escalating disruptions in shipping routes and their impact on global trade.

The report, titled "Navigating Troubled Waters: The Impact on Global Trade of Disruption of Shipping Routes in the Red Sea, the Black Sea, and the Panama Canal," emphasises the significant challenges faced by the maritime transport sector, which accounts for 80 per cent of worldwide goods transport.

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The Red Sea, a crucial waterway connecting the Indian Ocean to the Suez Canal and the Mediterranean Sea, has witnessed a surge in attacks by Houthi militants.

According to the World Economic Forum (WEF), there have been more than 33 reported incidents since November 19, 2023. These attacks have disrupted maritime trade routes through the Suez Canal and exacerbated existing disturbances in the Black Sea due to the conflict in Ukraine.

Simultaneously, the Panama Canal, an essential passage connecting the Atlantic and Pacific Oceans, is facing the challenge of decreasing water levels. This has sparked concerns about the resilience of global supply chains.

UNCTAD anticipates a 42 per cent reduction in transits crossing the Suez Canal and a 49 per cent reduction in those crossing the Panama Canal.

The report emphasises the economic and environmental burdens resulting from the decision to bypass the Suez and Panama canals.

This decision leads to extended travel distances, increased trade expenses, higher insurance premiums, and a rise in greenhouse gas emissions. The report also notes a substantial increase in average container spot freight rates since November 2023, with the last week of December 2023 registering the highest-ever weekly surge.

Quoting the report, UNCTAD states, "Average container shipping spot rates from Shanghai have more than doubled since early December (+122 per cent), are growing more than threefold to Europe (+256 per cent), and are even above average (+162 per cent) to the United States West Coast, despite not going through Suez."

The impact is particularly pronounced for countries on the west coast of South America, as approximately 22 per cent of Chilean and Peruvian foreign trade volumes depend on the Panama Canal.

Meanwhile, East African countries including Djibouti, Kenya, Tanzania, and Sudan heavily rely on the Suez Canal for their foreign trade.

UNCTAD warns of far-reaching economic implications, including threats to global supply chains, possible delays in deliveries leading to higher costs and inflation, and a potential hike in energy prices. Disruptions in grain shipments from Europe, Russia, and Ukraine also pose risks to global food security.

The report emphasizes the vulnerability of developing countries to these disruptions, calling for swift adaptations from the shipping industry and robust international cooperation to manage the rapid reshaping of global trade. It highlights the urgent need for sustainable solutions, especially in support of countries more vulnerable to geopolitical tensions and climate-related challenges.