Expressing concern over the Red Sea conflict's repercussions on the global economy, the United Nations Conference on Trade and Development (UNCTAD) highlighted a significant 42% decline in international trade passing through the Suez Canal over the past two months. Jan Hoffmann, Head of the Trade Logistics Branch at UNCTAD, addressed reporters on Thursday, emphasizing the impact on energy exports to India.
Hoffmann underscored the escalation of tensions in global trade due to both geopolitical issues and climate change. He warned of potential cascading effects on food prices, attributing the decline in shipping volume through the Suez Canal to attacks by Houthi rebels in the Red Sea region since November.
Major players in the shipping industry are temporarily rerouting away from the Suez Canal, leading to longer trade distances and higher freight rates. Hoffmann expressed concerns about the possibility of inflation due to these disruptions. According to UNCTAD estimates, attacks by Houthi rebels have resulted in a 42% reduction in Suez Canal shipping volume.
The Suez Canal, a crucial link connecting the Mediterranean Sea to the Red Sea, facilitated 12-15% of global trade last year. Some energy exports from Europe to India also rely on this route. Ships opting to avoid the Red Sea and the Suez Canal must detour around the Cape of Good Hope at the southern tip of Africa.
Hoffman highlighted the Red Sea crisis compounding issues in the Panama Canal and the Black Sea. The Black Sea, a major route for Ukrainian foodgrains, has been affected by war, while climate change-related problems have impacted the Panama Canal, with droughts reducing water levels.
The disruptions in key global trade routes have already contributed to a surge in energy prices, and Hoffman warned that prolonged disruptions could lead to delayed deliveries, increased costs, and potential inflation. The Red Sea attacks by Houthi rebels present a significant challenge to the container shipping sector, with over 20% of global container capacity being diverted from or planning alternatives to the Suez Canal in early 2024.
Container ship transits per week have seen a sharp 67% decline compared to a year ago, tanker traffic is down by 18%, and dry bulk carriers, transporting grains or coal, are experiencing a 6% decrease in shipping activity. The Suez Canal has become a focal point of concern for the global trade community amid these challenges.
(With Agency Inputs)