Peter Kenny
22 February 2024•Update: 23 February 2024
GENEVA
A new report Thursday by the UN development agency (UNCTAD) signals how attacks on Red Sea shipping are a factor reshaping the world's trade routes and pushing up costs globally.
The report -- titled The Impact of Global Trade of Disruption of Shipping Routes in the Red Sea, The Black Sea, and the Panama Canal -- notes that the Red Sea attacks have severely affected shipping through the Suez Canal.
The attacks have added to the existing geopolitical and climate-related challenges, and are a factor disrupting the world's lifelines, it said.
The report also highlighted that maritime transport is the backbone of international trade and is responsible for 80% of the global movement of goods.
"In the wake of recent attacks on shipping, the Red Sea's maritime trade routes through the Suez Canal have become severely disrupted, further impacting the global trade landscape," it added.
"This development compounds the ongoing disruption in the Black Sea due to the war in Ukraine, which has resulted in shifts in the oil and grain trade routes, altering established patterns."
The report also noted that 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," said the report.
UNCTAD estimated 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.
Shunning the Suez Canal
Mounting uncertainty and shunning the Suez Canal to reroute around the Cape of Good Hope has an economic and environmental cost, 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 $500, in the last week of December. And the trends have continued.
"Average container shipping spot rates from Shanghai more than doubled since early December (up by 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 report noted.
Foreign trade for several East African countries highly depends on the Suez Canal.
Around 31% of foreign trade by volume for Djibouti is channeled through the Suez Canal. The share is 15% for Kenya, and for Tanzania, it is 10%.
Ships are avoiding the Suez and the Panama Canals and seeking alternative routes, the report also said.
This combination translates into longer cargo travel distances, rising trade costs, and insurance premiums.
Greenhouse gas emissions are also growing from traveling greater distances and at greater speeds to compensate for the detours.
Meanwhile, total transits through the Panama Canal plummeted by 49% compared to its peak.
The Panama Canal is essential for the foreign trade of countries on the West Coast of South America.
