Ship transits through the Suez and Panama canals are down by 40 per cent compared with their peaks. In January, 1,338 ships passed through the Suez Canal from a peak of 2,318 ships in May 2023. the number of ships transiting through the Panama canal dropped to 676 in January 2024 versus a peak of 1,321 in January 2021.
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For the first time, the world is facing simultaneous disruptions in two major global maritime trade waterways. This has far-reaching implications for inflation and food and energy security, says a report released recently by the United Nations Conference on Trade and Development (UNCTAD), titled “Navigating Troubled Waters. The Impact to Global Trade of Disruption of Shipping Routes in the Red Sea, The Black Sea and the Panama Canal”.
Since November 2023, escalating attacks on ships in the Red Sea have been compounding disruptions in the Black Sea caused by the war in Ukraine. Ship transits have been affected by climate-induced droughts in the Panama canal.
Similarly, In 2023, about 22 per cent of global seaborne container trade passed through the canal, carrying goods including natural gas, oil, cars, raw materials and many manufactured products and industry components to and from the Indian Ocean, the Mediterranean Sea and the Atlantic Ocean.
Longer route
Given the risk of attack in the Red Sea, many ships are now avoiding the canal, opting for a longer route around Africa. By the first half of February 2024, a total of 586 container vessels had been rerouted, while container tonnage crossing the canal fell by 82 per cent.
Facing alarmingly low water levels, the Panama Canal Authority has reduced daily transits from an average of 36 to 22, with plans for further reductions to 18 per day. The Panama Canal is particularly important for countries on the West Coast of South America.
More oil tankers are now re-routing through the Cape of Good Hope in southern Africa. The number of specialised car-carrying ships using the Red Sea dropped by more than half in December 2023 compared with December 2022. No LNG carrying vessels are currently using the Suez Canal, causing a spike in gas prices, says the report released in Geneva recently.
Disruptions
The disruption in the Red Sea and Suez Canal, combined with factors linked to the Panama Canal and the Black Sea, could erode the environmental gains achieved through “slow steaming”, as re-routed vessels increase speeds to cover longer distances. This is particularly evident among container ships, where a 1 per cent increase in speed typically leads to a 2.2 per cent rise in fuel consumption. For example, accelerating from 14 to 16 knots increases fuel use per mile by 31 per cent.
The longer distances caused by rerouting from the Suez Canal to the Cape of Good Hope imply a 70 per cent increase in greenhouse gas emissions for a round trip from Singapore to Northern Europe.
Container freight rates on Asia–Pacific to Europe routes have risen sharply with a record weekly spike of $500 was observed in the last week of December 2023.
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While freight rate increases have been relatively higher on routes crossing the Suez, the repercussions extend to distant locations, such as routes linking Asia to the US West Coast, where rates have surged by 130 per cent since early November, the report said.