UNCTAD: Global economy faces risks as key maritime routes encounter vulnerabilities

Shafaq News/ The global economy is increasingly at risk due to “vulnerabilities at key maritime routes,” warned the Review of Maritime Transport 2024 report from the UN Trade and Development (UNCTAD).

The report indicated that if the crisis in the Red Sea and the Panama Canal persists, global consumer prices could rise by 0.6% by 2025. For small island developing states (SIDS), the impact would be more severe, with prices rising by 0.9%, and processed food prices potentially increasing by 1.3%.

The organization's report, dedicated to maritime transport, stated, “Critical chokepoints - such as the Panama Canal (connecting the Pacific and Atlantic Oceans), the Red Sea and the Suez Canal (linking the Mediterranean Sea to the Indian Ocean via the Arabian Peninsula), and the Black Sea (an important hub for grain exports) - are under severe strain.”

“A combination of geopolitical tensions, climate impacts, and conflicts have shaken global trade, threatening the functioning of maritime supply chains,” it added.

Additionally, the UN report noted that maritime trade, which grew by 2.4% in 2023 to reach 12,292 million tons, has begun to recover after a contraction in 2022. However, the future remains uncertain, with modest growth of 2% expected for 2024, driven by demand for bulk commodities like iron ore, coal, and grains, alongside containerized goods. “Yet, these figures mask deeper challenges,” it cautioned.

Container trade, which grew by just 0.3% in 2023, is expected to rebound by 3.5% in 2024. Meanwhile, the supply of container ship capacity increased by 8.2 percent in 2023. It was noted that long-term growth will depend on how the industry adapts to ongoing disruptions such as the war in Ukraine and increasing geopolitical tensions in the Middle East.

Major shipping routes have faced significant disruptions, causing delays, rerouting, and increased costs, as traffic through the Panama and Suez Canals—vital arteries for global trade—has dropped by over 50% by mid-2024 compared to its peak.

“This decline was driven by climate-induced low water levels in the Panama Canal and the outbreak of conflict in the Red Sea region affecting the Suez Canal. Meanwhile, the tonnage of ships transiting through the Gulf of Aden and the Suez Canal fell by 76% and 70% respectively, compared to late 2023,” the report clarified.

Rerouting shipments around the Cape of Good Hope (southern tip of Africa) has led to increased congestion in ports. In this context, the report said, “Cargo rerouting around the Cape of Good Hope (southern tip of Africa) has surged, with ship capacity arrivals increasing by 89%. While this helps maintain the flow of goods, it adds significantly to costs, delays and carbon emissions. For example, a typical large container ship carrying 20,000–24,000 twenty-foot equivalent units (TEUs) on the Far East-Europe route incurs an additional $400,000 in emissions costs per voyage under the European Union’s Emissions Trading System (ETS) when diverting around Africa instead of using the Suez Canal.”

By mid-2024, redirecting ships away from the Red Sea and Panama Canal resulted in a 3% increase in global demand for vessels and a 12% increase in demand for container ships compared to what it would have been without these disruptions.

The report confirmed, “This added significant pressure to global logistics and strained supply chains.” Port centers like Singapore and major Mediterranean ports are currently under pressure as they cope with the increased demand for transshipment services due to the rerouting of vessels.

“Congestion in these ports is adding another layer of complexity for global transport and trading networks,” it pointed out.