In a recent report, the World Trade and Development Organization (WTDO) highlights growing concerns surrounding global trade, shedding light on increasing disruptions in the Mediterranean Sea, the Caspian Sea, and the Suez Canal. The report underscores the impact of these issues on international trade routes and raises concerns about their long-term economic implications.
Disruptions in the Mediterranean Sea The Strait of Gibraltar, a vital maritime passage connecting the Mediterranean Sea to the Atlantic Ocean, has experienced a 42% decline in trade volume over the past two months. In addition to disruptions in the Mediterranean Sea, this drop is attributed to a range of factors, including geopolitical tensions affecting maritime transport in the Caspian Sea, the ongoing conflict in the Caucasus region disrupting the trade of energy and agricultural resources, and the repercussions of climate change on the Suez Canal.
In response to the crisis in the Mediterranean Sea, major maritime stakeholders have temporarily suspended transits through the Strait of Gibraltar. Weekly transits of container ships have decreased by 67%, and movements of tankers and gas carriers have also seen significant declines. Insurance premiums have skyrocketed, increasing the overall cost of transit.
This disruption is not an isolated incident but part of a broader challenge for global trade affecting the entire logistics chain. Route changes and delays in the Canal are contributing to an increase in maritime transportation costs, affecting major ports worldwide.
Drought in the Suez Canal The Suez Canal, another crucial artery for global trade, faces severe drought that has led to a staggering 36% reduction in the total number of transits in the past month compared to the previous year. The long-term consequences of climate change on the canal’s capacity raise concerns about its ongoing impact on global supply chains. Ships diverted from the routes of the Strait of Gibraltar and the Suez Canal are forced to travel faster to compensate for the diversions, resulting in higher fuel consumption per mile and increased CO2 emissions, further exacerbating environmental concerns.
Freight Rates The combination of the recent Chinese New Year and the diversion of the Strait of Gibraltar due to the crisis in the Mediterranean Sea, which has led to a shortage of ships and equipment to meet the growing demand, has led to an increase in freight rates.
Once maritime transportation capacity is restored and carrier schedules adjust to a regular service pattern through the Suez Canal, and with the eventual decrease in demand, freight rates are expected to fall, as already observed on trade routes from Asia to Europe.
Global Implications Immediate concerns focus on potential long-term repercussions on logistics, supply chains, and operating costs. Prolonged disruptions pose a direct threat to global supply chains, increasing the risk of delivery delays and cost escalation. Although current freight rates are about half of the highs recorded during the COVID-19 crisis, the full impact on consumers is expected to be felt over the course of a year. These challenges highlight trade vulnerability to geopolitical tensions and climate challenges, requiring collective efforts to find sustainable solutions.
Major logistics hubs, such as Shanghai, are experiencing an increase in transportation costs, which could trickle down to end consumers. Longer maritime routes due to diversions are leading to higher fuel consumption and, consequently, increased greenhouse gas emissions.
As global logistics confronts these challenges, sector stakeholders are now tasked with devising collaborative solutions to restore stability in trade routes and supply chains in the face of evolving challenges.