UN body warns that prolonged interruptions, particularly in container shipping, poses a direct threat to global supply chains
Freight ships, assisted by tugboats, entering the Panama Canal at Gatun Locks on the Atlantic side, headed west towards the Pacific. The Canal has recently recorded diminished water levels due to climate change. Photo: iStock The United Nations Conference on Trade and Development (UNCTAD) expressed concern on January 26, 2024, over increasing disruptions in global trade caused due to the impact of climate change and war on shipping in three key sea lanes: The Black Sea, the Red Sea and the Panama Canal.
The surge in the average container spot freight rates during the last week of December, by plus $500, in one week, was the highest ever weekly increase, the Geneva-based UN trade and development body noted in a statement.
It added:
Average container shipping spot rates from Shanghai this week are up by 122 per cent compared to early December. i.e. have more than doubled. The rates from Shanghai to Europe went up by 256 per cent, i.e. more than tripled. Rates to the United States West coast also increased above average, although they do not go through Suez. They increased by 162 per cent. Here we see the global impact of the crisis, as ships are seeking alternative routes, avoiding the Suez and the Panama Canal.
The disruption in global trade first began on February 24, 2022, when Russian troops invaded Ukraine on the express orders of President Vladimir Putin.
Russia also launched a blockade of Ukrainian Black Sea ports such as Odessa and Mykolayiv through which much of the global supply of wheat, sunflower oil and maize was exported through ‘choke points’ like the Straits of the Bosphorus and Dardanelles to the Mediterranean and globally.
Russia and Ukraine signed a landmark deal — The Black Sea Grain Initiative brokered by the United Nations and Turkiye — in Istanbul on July 22, 2022, to allow the resumption of Ukrainian grain exports from ports on the Black Sea. In July 2023, Russia refused to renew the initiative after it expired.
Read more: Russia, Ukraine reach landmark deal to resume Kyiv’s grain exports from Black Sea ports
“The ongoing conflict in Ukraine has triggered substantial shifts in oil and grain trades, reshaping established trade patterns. Simultaneously, the Panama Canal, a pivotal conduit for global trade, is grappling with diminished water levels, resulting in a staggering 36 per cent 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 UNCTAD statement noted.
The Panama Canal, running across the isthmus of Panama that connects North and South America, saves time for ships travelling between the Atlantic and Pacific Oceans by five months. Ships would otherwise have to travel to Cape Horn or the Strait of Magellan at the southern tip of South America.
Global trade has also been affected in the Red Sea, which connects the Mediterranean (through the Suez Canal at its northern end) with the Indian Ocean (through the Strait of Bab El Mandeb in the south).
The Houthis of Yemen have been attacking shipping in the waterway in the wake of the Israel-Gaza Conflict which began on October 7, 2023.
“The crisis in the Red Sea, marked by Houthi-led attacks disrupting shipping routes, has added another layer of complexity. Major players in the shipping industry have temporarily suspended Suez transits in response. Notably, container ship transits per week have plummeted by 67 per cent compared to a year ago, with container carrying capacity, tanker transits, and gas carriers experiencing significant declines,” noted UNCTAD.
It added that the cumulative effect of the disruptions translated into extended cargo travel distances, escalating trade costs, and a surge in greenhouse gas emissions from shipping having to travel greater distances and at greater speed.
“Avoiding the Suez and Panama Canal necessitates more days of shipping, resulting in increased expenses. The price per day of shipping and insurance premiums have surged, compounding the overall cost of transit. Additionally, ships are compelled to travel faster to compensate for detours, burning more fuel per mile and emitting more CO2, further exacerbating environmental concerns,” it said.
The UN body warned that prolonged interruptions, particularly in container shipping, posed a direct threat to global supply chains.
“Energy prices are witnessing a surge as gas transits are discontinued, directly impacting energy supplies, especially in Europe. The crisis is also reverberating in global food prices, with longer distances and higher freight rates potentially cascading into increased costs. Disruptions in grain shipments from Europe, Russia, and Ukraine pose risks to global food security, affecting consumers and lowering prices paid to producers,” the statement said.
Developing countries were “particularly vulnerable” to these disruptions, it added.
UNCTAD urged swift adaptations from the shipping industry and robust international cooperation to navigate the rapid reshaping of global trade dynamics.
“The current challenges underscore trade’s vulnerability to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions especially in support of countries more vulnerable to these shocks,” it stated.
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