The Red Sea Shipping Crisis Impact On Global Trade And Supply Chains

Paul Smith at Current Events

The Red Sea shipping crisis has been a major concern for global trade and supply chains. The crisis is caused by the Houthi rebels’ attacks on commercial vessels in the Red Sea, which have severely disrupted international shipping. The attacks have not only added to geopolitical tensions but also raised costs and led to increased greenhouse gases (GHG) emissions. Maritime transport is the lifeline of global trade, and these disruptions underline its vulnerability to geopolitics, tensions, and climate changes.

The Suez Canal, which is a vital link for international shipping, accounts for between 12 and 15 percent of global trade and about 20 percent of container trade. Disruptions there have a catastrophic, cascading effect worldwide, as seen during the March 2021 grounding of the vast Ever Given container ship that blocked the waterway for days. Given the risk of attacks, ships are avoiding the route, traveling along the much longer passage around the southern tip of Africa. Container ship transits are down 67 percent compared to a year ago. The largest impact is on liquefied natural gas (LNG) carriers, which have stopped altogether since January 16, 2024, according to UNCTAD. Prior to the crisis, normally two or sometimes three gas carriers used to pass through the region daily.

The challenges come on the back of pre-existing disruptions to global trade caused by the war in Ukraine and the abnormally low water levels in the Panama Canal due to climate change impacts. Low water levels have caused a decrease of 36 percent in ship transits compared to a year ago and are almost 62 percent down on two years ago. The impacts have been dramatic, with a surge in average container spot rates. Average shipping cost rates from Shanghai have more than doubled since early December 2023, those to Europe over tripled, and those to the US west coast also increased even though they don’t go through the Suez Canal.

Prolonged disruptions in major trade routes would disrupt global supply chains, leading to delayed deliveries of goods, increased costs, and potential inflation. The Red Sea shipping crisis is having a dramatic impact on global trade and supply chains, already reeling under the impacts of the war in Ukraine and climate change-linked conditions in the Panama Canal. The crisis is a bigger issue for the supply chain than Covid, according to data coming in on cargo vessel delays. The situation is alarming, and it is essential to address the crisis to prevent further damage to global trade and supply chains.

The Red Sea Shipping Crisis Impact On Global Trade And Supply Chains

Report Page