The unprecedented shipping disruptions in the Red Sea, Black Sea, and Panama Canal have raised risks to global trade, according to a UNCTAD report (pdf) released last week. Continued disruptions could potentially reshape global maritime networks and reconfigure world trade, endangering the free movement of goods and interwoven supply chains, the report says.

Where do we stand? The Suez Canal has seen a massive drop in transits over the last two months, as vessels reroute to around the Cape of Good Hope to avoid Houthi attacks. Some 586 container vessels were rerouted in the first half of February, with container tonnage falling by 82% and transits by 42% since the canal’s peak, the report notes.

Cape of Good transits are spiking: Vessel tonnage passing around the Cape of Good Hope increased by some 60%, according to the report. Asia-Europe and Asia-North Africa trade routes have no ideal alternative, while the Suez Canal competes with the Panama Canal for Asia-East Coast of North America routes.

Additional costs worldwide: The rerouting of ships has caused operational shifts and increases in distances, requiring more vessels and increased ton-mile demand, the report notes. Freight rates have increased significantly on routes that cross the Suez Canal with ripple effects being felt even in far-away Asia-US West Coast routes. US West Coast rates increased by some 130% since November 2023, despite the route not going through the canal.

Africa is feeling the pinch: The impact on Suez Canal’s revenues could lead to negative spillover effects for countries such as Ethiopia and Sudan, the report notes. Egypt has lost some USD 508 mn in its Suez Canal revenues due to the ongoing disruptions, with receipts falling to 47% y-o-y to USD 428 mn in January. Several East African countries are highly dependent on the Suez Canal for their trade: Sudan sends 34% of its trade through the canal, Djibouti sends some 31% of its trade through the canal, and Kenya and Tanzania send 15%.

Slow steaming is being parked: The disruption is also reversing the environmental gains of “slow steaming,” which saw the shipping industry adopt reduced speeds to curb costs and emissions over the past decade. The rerouting of vessels is leading them to increase their speeds in a bid to cover the longer distances, the report said, explaining that a container ship increasing speed by 1% would increase fuel consumption by some 2.2%, according to the report. The longer distances around the Cape of Good Hope could lead to a 70% increase in greenhouse gas emissions for a round trip between Northern Europe and Singapore, according to the report.

While the disruption level has not yet met the same threshold of the pandemic or the global logistical crunch of 2021-2022, UNCTAD is still monitoring the evolving situation of the Red Sea crisis, according to the report.

Developing countries will need to monitor key developments to assess implications for transport, and trade, according to the report. Shipping schedules, service reliability, security measures for ships and ports, delays in shipments and delivery timelines, increased freight rates, shipping connectivity, ins. premiums, and the overall geography of trade should be considered, the report notes.

Tags: