Global Trade Disruptions and Emerging Maritime Routes
Global Trade Disruptions and Emerging Maritime Routes
Ship attacks in the Red Sea, geopolitical tensions in the Black Sea, and climate change affecting the Panama Canal have disrupted global trade, The Arctic presents a promising alternative
UPDATES: UNCTAD has expressed significant concerns about the escalating disruptions to global trade, citing recent attacks on ships in the Red Sea, geopolitical tensions affecting shipping in the Black Sea, and the impact of climate change on the Panama Canal.
Attacks by Yemen’s Houthi rebels in the Red Sea have severely disrupted international trade along a crucial shipping route between Europe and Asia, affecting about 15% of global shipping traffic. This has forced numerous shipping companies to reroute vessels, causing significant changes and delays.
The Arctic presents a promising alternative with shorter routes, but its viability is contingent upon ice melt and technological advancements. Despite increasing interest, Arctic shipping remains minimal compared to other routes due to seasonal limitations, ice conditions, and geopolitical tensions.
Photo: TIME
Red Sea, Black Sea and Panama Canal: UNCTAD raises alarm on global trade disruptions
The UN’s trade and development body, UNCTAD, has raised profound concerns over escalating disruptions to global trade.
It says that recent attacks on ships in the Red Sea, combined with geopolitical tensions affecting shipping in the Black Sea and the impacts of climate change on the Panama Canal, have given rise to a complex crisis affecting key trade routes.
UNCTAD’s head of trade logistics, Jan Hoffmann, outlined the organization’s detailed analysis of the situation at the UN’s daily press briefing on 26 January. He underlined maritime transport’s critical role in international trade, noting that it is responsible for approximately 80% of the global movement of goods.
Disruptions in the Black Sea and Panama and Suez Canals
The Suez Canal, a critical waterway connecting the Mediterranean Sea to the Red Sea, handled approximately 12% to 15% of global trade in 2023. UNCTAD estimates that the trade volume going through the Suez Canal decreased by 42% 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% 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 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
In response to the Red Sea crisis, major players in the shipping industry have temporarily suspended Suez transits.
Notably, weekly container ship transits have plummeted by 67%. Tanker transits and gas carriers are also experiencing significant declines.
Meanwhile, shipping prices are increasing. 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 (+122%) since early December. More specifically, the rates from Shanghai to Europe have more than tripled (+256%), while rates to the west coast of the United States increased by 162%, 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 CO2, further exacerbating environmental concerns.
“Here we see the global impact of the crisis, as ships are seeking alternative routes,” Mr. Hoffmann said.
Global implications: Increases in energy and food prices.
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 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.
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How have Red Sea attacks by Yemen’s Houthi fighters affected companies?
By ALJAZEREA
Attacks on vessels by Yemen’s Houthi rebels in the Red Sea have disrupted international trade on the shortest shipping route between Europe and Asia.
The strikes, which came in solidarity with Palestinians facing Israeli bombardments in Gaza, are targeting a route that accounts for about 15 percent of the world’s shipping traffic, forcing several shipping companies to reroute their vessels.
The Houthi assaults have pushed several commercial vessels passing through the Suez Canal and the Bab al-Mandeb Strait to take an alternative and much longer route around South Africa’s Cape of Good Hope, causing major changes and delays.
Here’s a look at the impact the Houthi raids had on major companies:
Autos
Geely: China’s second-largest automaker by sales said on December 22 that its electric vehicle (EV) sales would likely be impacted by a delay in deliveries.
Michelin: Four factories in Spain owned by the French tyre maker halted output on January 20-21 due to raw materials delivery delays.
Suzuki: The company’s Hungary production plant restarted manufacturing on January 22 as planned following a halt the previous week due to delays in the arrival of Japanese-made engines. It said shipping routes were changed to pass around Africa, which could affect pricing.
Tesla: The US-based electric vehicle maker will suspend most car production at its factory near Berlin from January 29 to February 11 due to a lack of components caused by shifts in transport routes.
Volvo: The Swedish automaker said on January 12 that it would halt production at its Belgian plant for three days due to delays.
Energy
BP: The oil major on December 18 said it had temporarily paused all transits through the Red Sea.
Equinor: The company said on December 18 that it had rerouted vessels that had been heading towards the Red Sea.
Edison: The energy group’s CEO said on January 25 that it was starting to experience a slowdown in liquefied natural gas (LNG) supplies from Qatar.
Qatar Energy: The world’s second-largest exporter of LNG has stopped sending tankers via the Red Sea although production continues, a senior source with direct knowledge of the matter told the Reuters news agency on January 15.
Shell: The British oil major suspended all shipments through the Red Sea indefinitely, the Wall Street Journal reported on January 16.
Valero Energy: The US refiner said on January 25 that the Red Sea attacks have led to a rise in freight rates for crude oil.
Logistics
DHL: The German logistics company, which does not operate ships but uses them to transport containers, on January 8 advised customers to take a close look at how they manage inventories.
FedEx: The US parcel delivery giant said on January 14 that it hadn’t seen much of a shift to air freight due to disruptions in the Red Sea.
Retailers
Adidas: CEO Bjorn Gulden said on February 1 that shipping disruptions in the Red Sea were negative for gross margins, adding that “exploding” freight rates were driving up costs and shipping delays were causing some delivery issues.
Danone: The French food group said in December that most of its shipments had been diverted, increasing transit times. Should the situation last beyond 2-3 months, Danone will activate mitigation plans, including using alternate routes, its spokesperson said.
Ikea: The furniture retailer is sticking to planned price cuts despite increased costs, and has sufficient stocks to absorb any supply chain shocks, it said on January 15.
Marks & Spencer: The British retailer’s CEO said on January 11 that the company is expecting some slight delay in clothing and home deliveries due to the disruption to shipping.
Next: The British clothing retailer’s CEO on January 4 said sales growth would likely be moderated if disruptions continued through 2024.
Pepco: The Poundland owner warned on January 18 that its supply could be impacted in the coming months if the disruptions continue.
Primark: Associated British Foods’ finance director said on January 23 that Primark is coping with disruptions by adjusting timings and stock flow.
Sainsbury’s: “We’re making sure that we plan the sequencing of product from Asia Pacific so that we get products in the right order,” the company’s CEO said, adding that long-term contracts with shippers “mitigate any cost impact as far as possible”.
Target: The US retailer is experiencing some disruptions of shipments from India and Pakistan, a source familiar with the matter said on January 12, calling the effect “minor” overall.
Tractor Supply: Deliveries for the US retailer have been delayed anywhere from two to 20-plus days, the company’s chief supply chain operator said on January 12.
Williams-Sonoma: The Pottery Barn owner is rerouting shipments and has been working on contingency plans, its CEO told CNBC on January 24.
Others
BHP Group: The Australian mining giant on January 25 said the disruptions were forcing some of its freight service providers to take alternative routes, such as Africa’s Cape of Good Hope.
Electrolux: The Swedish home appliance maker has set up a task force to find alternative routes or identify priority deliveries to try to avoid disruptions. On February 2, its CEO said that costs related to the developments in the Red Sea were manageable. “If the situation is prolonged, I am more worried about higher costs than about risk of having to pause production,” he added.
Essity: The maker of brands such as Libresse and TENA said it was staying in contact with impacted suppliers to ensure the continued flow of goods. On January 25, its CEO said that it saw a negative impact on its freight costs, but he could not specify what that impact would amount to.
Evonik: The speciality chemicals maker said it was being hit by “short notice routing changes and delays”, and was trying to mitigate the impact by ordering earlier and switching to air freight where possible.
Gechem GmbH & Co KG: The German chemicals maker said it had lowered production of dishwasher and toilet tablets as a result of the delays.
Kone: The Finnish elevator maker said the situation may in some cases delay shipments, but most of its customer deliveries should stay on schedule. Kone said it had prepared for the disruptions by seeking alternative delivery methods and routes.
Levi Strauss & Co: The denim maker is experiencing delays of 10 to 14 days in transit times as a result of continued disruptions to Red Sea shipping. It has shifted some US shipments to the West Coast, avoiding the Red Sea and Suez Canal.
Logitech: The computer peripheral maker’s CEO on January 23 said profit margins will be hit by higher transport costs due to the Red Sea crisis.
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How viable is Arctic shipping?
By NEWSROOM
Shipping lanes are under pressure. Seven of the world’s ten biggest shipping companies have suspended transit through the Red Sea, where the Houthis, a Yemeni rebel group, are attacking commercial vessels. As a result far fewer ships are using the Suez Canal, a shortcut from the Indian Ocean to the Mediterranean Sea, notes ‘The Economist’.
The volume of trade passing through the Panama Canal, which connects the Atlantic and Pacific Oceans, has declined by 30% since November, after severe drought hit its reservoirs, lowering the water level. The spot rate for sending a 40-foot container from China to northern Europe has risen by 283% since early-December, according to figures from Freightos, an online freight marketplace.
There is a tantalising alternative for long-distance sea trade: a series of routes that could cut up to 40% off the length of journeys made via the Suez Canal. But there is a catch: the Northern Sea Route (NSR), North-West Passage (NWP) and Transpolar Sea Route (TSR) cross an ocean covered in ice. Could the Arctic be a viable option for commercial shipping?
Increasingly, yes — and for a worrying reason. The Arctic is warming four times faster than the global average. Since 1978 ice cover has shrunk by roughly 78,000 square kilometres per year. In June 2023 a study in Nature Communications, a journal, suggested that the Arctic’s first ice-free summer could come as soon as the 2040s, even if the world significantly reduces its greenhouse-gas emissions. As ice thins and cold-water shipping technology advances, Arctic waters will become more easily navigable.
They are already getting busier, if from a low base. The most popular shipping route in the Arctic is the nsr, which is controlled by Russia. Trade volumes along the route increased by 755% between 2014 and 2022. Russia wants traffic to increase ten-fold from 2022 levels by 2035. In October it announced a joint venture with DP World, an Emirati logistics company, to develop Arctic container shipping. That month NewNew Shipping Line, a Chinese firm, completed its first round-trip on an Arctic route between Shanghai and St Petersburg.
But Arctic shipping remains negligible by world standards. In 2022 fewer than 1,700 ships entered the Arctic; over 23,000 went through the Suez Canal and 14,000 through the Panama Canal. Shipping along northern routes remains seasonal: most voyages are made in the summer. The nwp has more ice than the nsr and attracts less traffic. The tsr will be navigable only by heavy icebreakers until its ice melts sufficiently. All this makes insurers wary. Poor mapping, combined with extreme and unpredictable weather, increases the likelihood of accidents. And time savings are uncertain. According to a study published in April 2023 in Geophysical Research Letters, another journal, delays due to sea fog account for 23-27% of sailing time along the nwp and 4-11% along the nsr. Arctic navigation requires expertise and specialist ships. Both come at a cost.
Mounting geopolitical tensions will also hinder trans-Arctic shipping, at least in the medium term. Ships must have permission from Russian authorities to sail along the nsr: almost no Western vessels use it. Canada and America disagree on transit rules along the nwp. Eventually, as the Arctic warms further and international waters along the TSR open up, political tussling may become less important.
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