Trade routes under pressure: global geopolitical dynamics impacting key waterways

panama canal red sea crisis

In a recent report, the United Nations Conference on Trade and Development (UNCTAD) highlighted the growing threats to global trade, shedding light on the escalating disruptions in the Red Sea, Black Sea, and the Panama Canal. The report emphasises the impact of these challenges on international trade routes and raises concerns about their far-reaching economic implications.

Red Sea Disruption

The Suez Canal, a vital waterway linking the Mediterranean Sea to the Red Sea, has experienced a 42% decrease in trade volume over the last two months. In addition to the Red Sea disruption, this decline is attributed to a combination of factors, including geopolitical tensions affecting shipping in the Black Sea, the ongoing conflict in Ukraine reshaping oil and grain trades, and the impacts of climate change on the Panama Canal.

In response to the Red Sea crisis, major players in the shipping industry have temporarily suspended Suez transits. Weekly container ship transits have plummeted by 67%, with tanker movements and gas carriers also experiencing significant declines. Insurance premiums have surged, compounding the overall cost of transit.

This disruption is not isolated but forms part of a broader challenge to global trade, impacting the logistics chain. The shift in routes and delays in the Canal are contributing to increased shipping costs, affecting major ports globally.


Panama Canal Drought

The Panama Canal, another crucial artery for global trade, is grappling with a severe drought that has led to 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 raise concerns about enduring impacts on global supply chains. 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.


Container Prices

The combination of the Chinese New Year peak and the Red Sea rerouting via the Cape of Good Hope which resulted in insufficient vessels and equipment being in place to handle the increased demand, has caused an upward surge in container prices.

Once the shipping capacity returns, carriers’ schedules settle into a regular service pattern routed via the Cape, and we see an eventual drop in demand, there is an expectation that rates will fall, a development already seen on the Asia to Europe trade lanes.

With record new tonnage from the carriers being deployed over the next 12-18 months (25% above current global fleet), most forecasters are expecting freight rates to fall, thereby ensuring shipping costs do not increase significantly.


Global Implications

The immediate concerns centre around the potential long-term impacts on logistics, supply chains, and operational costs. Prolonged interruptions 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, the full impact on consumers is expected within a year. These challenges underscore trade’s vulnerability to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions.

Major logistics hubs like Shanghai are experiencing a surge in shipping costs, with potential impacts on end-consumers. Longer shipping routes due to diversions are leading to increased fuel consumption and a subsequent rise in greenhouse gas emissions.

As global logistics grapple with these challenges, industry stakeholders are now tasked with devising collaborative solutions to restore stability to trade routes and supply chains in the face of evolving challenges.