UN: Red Sea Attacks, Ukraine War, and Panama Canal Water Woes Disrupt Global Trade

The United Nations’ trade agency has raised concerns about the impact of various global events on international trade. These include the ongoing conflict in Ukraine, reduced water levels in the Panama Canal, and attacks in the Red Sea.

Jan Hoffmann, a trade specialist with the United Nations Conference on Trade and Development (UNCTAD), highlighted that these events have led to a significant increase in shipping costs, affecting the price of energy and food and potentially inflating overall costs.

One major issue is the disruption of traffic through Egypt’s Suez Canal, crucial for transporting energy and cargo between Asia and Europe. This route has been less utilized due to attacks by Yemen’s Houthi rebels, causing a 42% drop in trade volume through the canal in the last two months of 2023, according to Hoffmann.

The Houthis, a Shiite rebel group in conflict with the Saudi-backed Yemeni government since 2015, have launched over 30 attacks on ships in the Red Sea since November. Their actions are reportedly in support of Palestinians and are expected to continue until the Israel-Hamas conflict ceases. Despite U.S. and British military responses, the Houthi assaults have persisted.

Hoffmann, leading UNCTAD’s trade logistics division, noted that these disruptions coincide with other global trade challenges, including the Russia-Ukraine war that began on February 24, 2022, altering oil and grain trade routes, particularly in the Black Sea region.

Adding to these challenges, a severe drought has led to the lowest water levels in decades in the Panama Canal, significantly limiting the size and number of vessels that can pass through it. This has resulted in a 36% reduction in transits compared to the previous year, and a 62% decrease compared to two years prior.

Hoffmann stressed that these issues are particularly impactful on the shipment of grains and other essential commodities from Europe, Russia, and Ukraine, escalating costs for consumers and threatening global food security. This is especially concerning for regions like East Africa, South Asia, Southeast Asia, and East Asia, which depend heavily on wheat imports from these areas.

Early data from 2024 show that over 300 container vessels, representing more than 20% of the global container capacity, are either diverting from or seeking alternatives to the Suez Canal route. Many are opting for the longer, more expensive route around Africa’s Cape of Good Hope.

Additionally, ships carrying liquefied natural gas have completely ceased using the Suez Canal due to attack concerns. Hoffmann also reported a substantial increase in average container shipping spot rates from Shanghai since early December, with rates to Europe rising by 256% and to the U.S. west coast by 162%.

In summary, Hoffmann pointed out the global impact of these crises, as ships seek alternative routes to avoid the Suez and Panama Canals.