ESCALATING disruptions to global trade are causing the UN’s trade and development body, UNCTAD, “profound concerns”.
UNCTAD’s head of trade logistics, Jan Hoffmann, says that 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.
The body estimates that the trade volume going through the Suez Canal decreased by 42% over the last two months, while the ongoing conflict in Ukraine has also triggered substantial shifts in oil and grain trades, reshaping established trade patterns.
Meanwhile, the Panama Canal is grappling with a severe drought that has diminished water levels, resulting in a staggering 36% reduction in total transits over the past month compared to a year ago, UNCTAD’s analysis found.
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.
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. Average container shipping spot rates from Shanghai have more than doubled (+122%) since early December. More specifically, the rates from Shanghai to Europe have more than tripled (+256%), while rates to the west coast of the United States increased by 162%, although ships on this route do not go through the Suez Canal. Insurance premiums have also surged, compounding the overall cost of transit.
Additionally, 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, UNCTAD notes.
“Here we see the global impact of the crisis, as ships are seeking alternative routes,” Mr Hoffmann said. Prolonged interruptions, particularly in container shipping, pose a direct threat to global supply chains, raising the risk of delayed deliveries and higher costs.
While 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. Energy prices are witnessing a surge as gas transits are discontinued, directly impacting energy supplies, especially in Europe.
UNCTAD said the crisis was 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.
“Developing countries are particularly vulnerable to these disruptions, and UNCTAD remains vigilant in monitoring the evolving situation,” Mr 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.