The Red Sea Crisis, Russia-Ukraine Conflict, And Panama Canal Drought Are Disrupting Global Trade.

The United Nations Conference on Trade and Development (UNCTAD) warned on Thursday (January 25) local time that the Red Sea crisis, the Russian-Ukrainian conflict, and the drought in the Panama Canal are causing serious disruptions to global trade.

Jan Hoffmann, head of UNCTAD's trade logistics division, said global shipping costs have risen sharply, and energy and food costs have also been affected, increasing the risk of inflation.

Major players in the global shipping industry have temporarily halted transit through the Suez Canal since Yemen's Houthis began launching attacks on ships in the Red Sea and nearby waters. The Suez Canal is a vital link between the Red Sea and the Mediterranean Sea and is of great significance for the transportation of energy and goods between Asia and Europe.

Hoffman cited data stating that the Suez Canal will account for 12 to 15 percent of global trade in 2023, but UNCTAD estimates that trade through the Suez Canal has fallen by 42 percent in the past two months.

The Houthis have launched at least 34 attacks on ships in the Red Sea and its neighboring waters since last November, statistics show. Although British and US forces have launched air strikes against Houthi strongholds in Yemen, the group has continued to attack merchant ships.

Hoffman emphasized that, while throughput in the Suez Canal has fallen sharply, other major global trade routes are also under pressure. He noted that the Russian-Ukrainian conflict and other geopolitical tensions that have persisted for nearly two years since the outbreak of the conflict in 2022 have reshaped oil and food trade routes, including those through the Black Sea.

Global shipping costs soar.

Adding insult to injury for shipping companies, a severe drought has lowered the water level of the Panama Canal to its lowest point in decades, significantly limiting the number and size of ships that can pass through the canal.

Hoffman noted that in December of last year, Panama Canal throughput was down 36 percent from a year ago and 62 percent from two years ago. About 80 percent of global trade is transported by ships, and that percentage is even higher in developing countries.

So far this year, more than 300 container ships, which account for more than 20 percent of global container capacity, are moving or planning to use alternatives to the Suez Canal. Many ships are choosing to detour around the Cape of Good Hope at the southern tip of the African continent, a voyage that is not only longer but also more costly.

Global shipping costs are rising sharply. Since the beginning of December last year, the average spot rate for containerized shipping from Shanghai has risen by 122%, from Shanghai to Europe by 256%, and to the U.S. West Coast by 162%.

Hoffman said, "The global impact of this crisis is becoming apparent as ships are looking for alternative routes to avoid the Suez and Panama Canals."