The United Nations Conference on Trade and Development (Unctad) has warned of far-reaching implications for inflation and food and energy security thanks to unprecedented threats to shipping in the Red Sea, Black Sea and Panama Canal.
The organisation points out that recent attacks on commercial vessels in the Red Sea have severely affected shipping through the Suez Canal, adding to existing geopolitical and climate-related challenges facing global trade and supply chains.
According to a new report released yesterday (February 22), the Red Sea crisis is compounding the ongoing disruptions in the Black Sea due to the war in Ukraine, which have resulted in shifts in oil and grain trade routes and altered established patterns.
Additionally, the Panama Canal, a critical artery linking the Atlantic and Pacific oceans, is confronting a separate challenge. Dwindling water levels 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 have 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 have plummeted by 49% compared to its peak.
Mounting uncertainty and shunning the Suez Canal to reroute around the Cape of Good Hope have both economic and environmental repercussions, particularly for developing economies, says the report.
Growing significantly since November 2023, the surge in the average container spot freight rates registered the highest-ever weekly increase of $500 in the last week of December. This trend has continued.
Average container shipping spot rates from Shanghai have 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.
The highest surge in freight rates is evident on the Suez Canal as ships are avoiding it, along with the Panama Canal, seeking alternative routes. This combination translates into longer cargo travel distances, rising trade costs and insurance premiums.
Not to mention the impact on greenhouse gas emissions, which are also growing from having to travel longer distances and at greater speed to compensate for the detours.
Unctad underscores the 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, practically no liquefied natural gas-carrying vessels are using the Suez Canal at present. This is directly impacting energy supplies and prices, especially in Europe.
The crisis could also impact global food prices, with longer distances and higher freight rates potentially cascading into increased costs. Disruptions to grain shipments pose risks to global food security, affecting consumers and lowering prices paid to producers.
