UNCTAD Warns of Global Trade Crisis as Logistics Disruptions Rise

The United Nations Conference on Trade and Development (UNCTAD) warns that global trade disruptions are escalating due to recent incidents and ongoing geopolitical tensions at the Suez Canal, the Black Sea, and the Panama Canal. These incidents are putting key trade routes at risk, a considerable threat due to maritime transport's critical role in international trade. 

Maritime transport is responsible for about 80% of the global movement of goods, warns Jan Hoffman, Head of Trade Logistics, UNCTAD, at the United Nation's daily press briefing on Jan. 26. 

The Red Sea, a vital maritime route connecting the Mediterranean Sea to the Indian Ocean through the Suez Canal, has become a red zone for shipping companies due to recent missile attacks on vessels. This critical waterway is a linchpin for global trade, handling between 12% and 15% of global trade in 2023. As a result, UNCTAD estimates that the trade volume going through the Suez Canal decreased by 42% over the last two months.

More than US$280 billion in goods have been diverted, as several shipping companies have stopped their operations there as a result of the direct attacks their ships suffered, such as Hapag-Lloyd, Maersk, MSC, and DSV. These companies are thus diverting their operations into the Cape of Good Hope in South Africa. Oil companies, tanker transits, and gas carriers are also following these measures, as the United States advised commercial ships to avoid the Red Sea, causing weekly container ship transits to plummet by 67%, while the Cape of Good Hope is also presenting disruption with a delay of 10 days according to GoComet.

Meanwhile, the Panama Canal has been dealing with several challenges provoked by the meteorological phenomenon El Niño, which alters precipitation patterns and affects water availability. The challenges affecting this major trade channel are causing uncertainty in international markets. According to Georgia Tech, about 5% of the world's maritime trade transits through the Panama Canal, which has seen a 36% reduction in total transits over the past month compared to 2023.

In response to the long-running disruption, Maersk decided that vessels that previously traversed the Panama Canal would now use the established Panama Canal Railway to transport containers across Panama. Ships that are rerouted are compelled to travel faster to compensate for detours, burning more fuel per mile and emitting more CO2, exacerbating environmental concerns, says UNCTAD.

The organization also warns that the conflict between Ukraine and Russia is disrupting supply chains and reshaping established trade patterns.

The disruption of gas transits has led to a surge in energy prices, directly impacting energy supplies, particularly in the European Union. This crisis has a ripple effect on global food prices, as longer distances and higher freight rates may result in elevated costs. Disruptions in grain shipments from the European Union, the Russian Federation, and Ukraine pose significant risks to global food security, affecting consumers and potentially reducing the prices received by producers. 

As a result of these disruptions, rates are significantly rising. According to FreightOS, carriers are announcing substantial General Rate Increases (GRIs) up to US$5,000 per FEU in February. EU rates are up 173% and Asia-Mediterranean prices are doubling, with carriers implementing surcharges ranging from US$500 to US$2,700 per container.

The industry also anticipates capacity shortages and congestion in the coming weeks, easing only as demand softens. Due to maritime disruptions, some shippers are switching to air freight for valuable, time-sensitive shipments. Despite this, air freight has not seen a significant increase. 

The UNCTAD highlights the need for resilience from the shipping industry and international cooperation in swiftly reshaping global trade dynamics.