UNCTAD raises alarm over global trade disruptions
The United Nations Conference on Trade and Development (UNCTAD) is sounding the alarm about the increasing disruptions in global trade, attributed to escalating geopolitical tensions and the impact of climate change on vital trade routes around the world.
In a statement, the UNCTAD expressed profound concerns over the escalating disruptions in global trade, particularly stemming geopolitical tensions affecting shipping in the Black Sea, recent attacks on shipping in the Red Sea affecting the Suez Canal and the impact of climate change on the Panama Canal.
“UNCTAD underscores the far-reaching economic implications of these disruptions. Prolonged interruptions, particularly in container shipping, pose a direct threat to global supply chains, potentially leading to delayed deliveries and heightened costs. While current container rates are approximately half of the peak during the COVID crisis, passing on higher freight rates to consumers takes time, with the full impact expected to manifest within a year,” the UNCTAD said.
“Energy prices are witnessing a surge as gas transits are discontinued, directly impacting energy supplies, especially in Europe. The crisis is also reverberating in global food prices, with longer distances and higher freight rates potentially cascading into increased costs. Disruptions in grain shipments from Europe, Russia, and Ukraine pose risks to global food security, affecting consumers and lowering prices paid to producers,” it added.
UNCTAD emphasized the critical role maritime transport plays as the backbone of international trade, responsible for over 80 percent of the global movement of goods.
“The recent attacks on Red Sea shipping, coupled with existing geopolitical and climaterelated challenges, have given rise to a complex crisis affecting key global trade routes,” the UNCTAD said, citing estimates that weekly transits going through the Suez Canal decreased by 42 percent over the last two months.
UNCTAD also stressed that ongoing conflict in Ukraine has triggered substantial shifts in oil and grain trades, reshaping established trade patterns.
“Simultaneously, the Panama Canal, a pivotal conduit for global trade, is grappling with diminished water levels, resulting in a staggering 36 percent 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,” it added.
On top of this, it emphasized that the crisis in the Red Sea, marked by Houthi-led attacks disrupting shipping routes, has added another layer of complexity.
This has resulted in major players in the shipping industry temporarily suspending Suez transits in response.
“Notably, container ship transits per week have plummeted by 67 percent compared to a year ago, with container carrying capacity, tanker transits, and gas carriers experiencing significant declines,” the UNCTAD said.
It stressed that the surge in the average container spot freight rates during the last week of December, by over $500 in one week, was the highest ever weekly increase.
The UNCTAD explained that average container shipping spot rates from the Shanghai area are already up 122 percent from early December, while rates from Shanghai to Europe increased by 256 percent.
“Here we see the global impact of the crisis, as ships are seeking alternative routes, avoiding the Suez and the Panama Canal. The cumulative effect of these disruptions translates into extended cargo travel distances, escalating trade costs, and a surge in greenhouse gas emissions from shipping having to travel greater distances and at greater speed,” the UNCTAD said.
“Avoiding the Suez and Panama Canal necessitates more days of shipping, resulting in increased expenses. The price per day of shipping and insurance premiums have surged, compounding the overall cost of transit. Additionally, ships are compelled to travel faster to compensate for detours, burning more fuel per mile and emitting more CO2, further exacerbating environmental concerns,” it added.
Philippine Economic Zone Authority (PEZA) directorgeneral Tereso Panga earlier said the closure and shutdown of the Red Sea to trade would make shipping costs 15 percent more expensive and add 10 days for the exchange of goods between Europe and Asia.
“It will definitely affect global trade, delaying production and deliveries of products and resources, thereby increasing the cost of goods,” he warned.
Panga said this could result in higher inflation in different parts of the world.
“We have yet to feel the effects in the Philippines but we are pro-actively working together with other concerned agencies to derisk global supply chains that may affect our locators in particular and the whole economy in general,” Panga said.
The PEZA chief said the agency is collaborating with the affected registered business enterprises that are importing and exporting to and from Europe and the Mediterranean to ensure that the least possible effects would be felt as contingencies are set in place in anticipation of any major conflict.
According to earlier news reports, World Trade Organization director-general Ngozi Okonjo-Iweala said they are less optimistic about global trade this year amid the Red Sea tensions.
The WTO earlier forecasted global merchandise trade volumes to grow by 3.3 percent this year.
Okonjo-Iweala said they would revise those estimates as they expect a weaker performance this year.