UNCTAD: Geopolitics, attacks, climate change compound global trade crisis

UNCTAD: Geopolitics, attacks, climate change compound global trade crisis

Photo Suez Canal Authority

The United Nations Conference on Trade and Development (UNCTAD) has expressed serious concerns regarding the increasing disruptions to global trade. UNCTAD has stated that a complex crisis affecting vital trade routes has arisen due to a combination of factors. Recent attacks on ships in the Red Sea, geopolitical tensions affecting shipping in the Black Sea, and the impacts of climate change on the Panama Canal have all contributed to the crisis.

UNCTAD’s head of trade logistics, Jan Hoffmann, underlined maritime transport’s critical role in international trade, noting that it is responsible for approximately 80 per cent of the global movement of goods.

Trade volumes through Suez and Panama Canals plummet

The Suez Canal, a critical waterway connecting the Mediterranean Sea to the Red Sea, handled approximately 12 per cent to 15 per cent of global trade in 2023. 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.

Meanwhile, the Panama Canal, another key artery for global trade, 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, according to UNCTAD.

The long-term implications of climate change on the canal’s capacity are raising concerns about enduring impacts on global supply chains. The crisis in the Red Sea, marked by Houthi-led attacks disrupting shipping routes, has added another layer of complexity.

Container ship transits plummet as freight rates and emissions surge

Major players in the shipping industry have temporarily stopped Suez transits in response to the Red Sea crisis. Weekly container ship transits have fallen by 67 per cent, while tanker transits and gas carriers are also experiencing significant declines. At the same time, shipping prices are on the rise. During the last week of December, the average container spot freight rates experienced a $500 increase, which is the highest-ever weekly increase.

Average container shipping spot rates from Shanghai have more than doubled (+122 per cent) since early December. More specifically, the rates from Shanghai to Europe have more than tripled (+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, UNCTAD said. 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 CO2, further exacerbating environmental concerns.

“Here we see the global impact of the crisis, as ships are seeking alternative routes,” Hoffmann said.

Global trade crisis implications

UNCTAD has highlighted the significant economic consequences of the recent disruptions, particularly in container shipping. These interruptions may cause delays in global supply chains, resulting in higher costs and posing a direct threat. Although container rates are presently half of what they were during the COVID-19 crisis, consumers may face the full impact of increased prices within the next 12 months. Furthermore, energy prices are surging due to discontinued gas transits, which is directly impacting energy supplies, particularly in Europe.

The crisis is also impacting global food prices, with longer distances and higher freight rates potentially cascading into increased costs. Disruptions in grain shipments from Europe, the Russian Federation and Ukraine pose risks to global food security, affecting consumers and lowering the prices paid to producers.

Global trade crisis impact on developing countries

“Developing countries are particularly vulnerable to these disruptions, and UNCTAD remains vigilant in monitoring the evolving situation,” Hoffmann said.

The organization stressed the need for the shipping industry to adapt quickly and for international cooperation to be strengthened to navigate the rapid changes in global trade dynamics. These current challenges highlight the vulnerability of trade to geopolitical tensions and climate-related issues, which call for collective efforts to find sustainable solutions, particularly in support of countries that are more vulnerable to these shocks.

Author: Adnan Bajic

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