UNCTAD vexed over trade disruptions due to geopolitics, climate change

All these have given rise to a complex crisis affecting key trade routes, UNCTAD said in a release.

The Suez Canal, connecting the Mediterranean Sea to the Red Sea, handled nearly 12-15 per cent of global trade last year. UNCTAD estimates that the trade volume going through the Suez Canal decreased by 42 per cent over the last two months.

The ongoing conflict in Ukraine has also triggered substantial shifts in oil and grain trades, reshaping established trade patterns, UNCTAD noted.

Meanwhile, the Panama Canal is grappling with a severe drought that has 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, UNCTAD noted.

The crisis in the Red Sea, marked by Houthi rebel-led attacks disrupting shipping routes, has added another layer of complexity, it said.

Weekly container ship transits through the Suez Canal have plummeted by 67 per cent. Tanker transits and gas carriers are also experiencing significant declines.

Shipping prices are increasing as well. The $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 (plus 122 per cent) since early December. More specifically, the rates from Shanghai to Europe have more than tripled (plus 256 per cent), while rates to the west coast of the United States increased by 162 per cent, 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 carbon dioxide, further exacerbating environmental concerns.

UNCTAD underscored the far-reaching economic implications of these disruptions. 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.

The crisis is also affecting global food prices, with longer distances and higher freight rates potentially cascading into increased costs.

Developing countries are particularly vulnerable to these disruptions, UNCTAD added.

Fibre2Fashion News Desk (DS)