STRETCHED AND INSECURE SUPPLY CHAINS HURT THE POOREST NATIONS MOST
Extended supply chains are increasing shipping costs and are having a “profound impact” on global energy and food supplies as well as the global economy according to the United Nations Conference on Trade and Development (UNCTAD)’s latest maritime review.
The Review of Maritime Transport 2024 released last week said that the small island and least developed states are bearing the brunt of these disruptions as they are the most vulnerable economies to the effects of climate change and political and social upheaval.
UNCTAD’s analysis: “Underscores the need for new infrastructure that is sustainable and resilient, a faster transition to low-carbon shipping and a crackdown on fraudulent ship registrations to safeguard global trade.”
The closure of the Suez Canal, which forced carriers to divert around the African Cape, absorbed vast amounts of tonnage as carriers attempted to maintain weekly schedules.
Suez is seen as a ‘chokepoint’ in supply chains, in a prolonged war that is showing few signs of ending, though fighting must eventually cease, with many observers looking to the end of 2025 or early 26 for a resumption of Suez trading.
Another chokepoint according to UNCTAD was Panama, which saw disruption caused by drought, forcing draught restrictions on vessels transiting the waterway, with some cargo initially heading to the US East Coast via Suez and then, following the Red Sea crisis heading to the US West Coast, travelling overland to eastern destinations.
“Regional examples show the wider impact.,” said UNCTAD, “East African nations like Djibouti and Sudan, reliant on the Suez Canal for a third of their trade, face severe disruptions. The Panama Canal disruption has increased sailing distances by 31% for affected routes.”
Longer routes saw costs for fuel, wages, insurance and chartering rise substantially and added to vessel emissions.
“For a 20,000-24,000 teu vessel on the Far East-Europe route, CO2 emissions alone add $400,000 in costs under the European Union’s Emissions Trading System,” said the report.
Meanwhile small island and developing states have seen maritime connections fall 9% over the last decade.
In particular intra-regional trade fell 3% last year, and with regional trades accounting for more than one third of global trade, while the larger intercontinental trades increased 2%, this meant global container trades stagnated overall, according to Dyna Liners Trades Review 2024, which, like UNCTAD’s report was published last week.
Intra-Asia freight alone accounts for more than a quarter of global trade volumes which totalled 173.22 million teu in 2023, according to Container Trades Statistics, quoted in the Dyner Liners review.
With the least developed countries suffering the most UNCTAD called for:
- Strengthened international cooperation to stabilise trade routes, enhance resilience and minimise supply chain disruptions from geopolitical and climate-related risks.
- Improved monitoring systems for early detection of chokepoint disruptions and faster rerouting, as well as investment in early warning systems for ports.
- Support for regional trade to reduce reliance on vulnerable routes and boost intraregional supply chains.
- Enhanced global coordination to prevent protectionism and ensure open trade routes.
- Active support of all UN Member States and stakeholders for IMO efforts to combat fraudulent ship registration through better verification, information sharing and strengthening of the legal framework.
New regulations will increase costs, as it is accepted that alternative fuels, whether it is ammonia, hydrogen or methanol will be more expensive than current fossil fuel prices. And although rates have fallen substantially, particularly on the major east/west trades, they remain elevated compared to pre-pandemic levels.
Average Drewry World Container Index (WCI) rates for this year are $4,058 per feu, which is $1,225 per feu higher than the 10-year average, which includes the unprecedented rates seen during Covid.
“The impact is especially severe for vulnerable economies reliant on maritime transport, as rising costs erode trade competitiveness, threaten economic stability and drive inflation,” said UNCTAD.
Quoting the Shanghai freight indexes for average rates for January to July this year, UNCTAD said Latin American rates of $9,026 per teu have more than doubled; South African rates have tripled to $5,426 per teu; and West Africa has seen a 137% leap to $5,563 per teu.
UNCTAD, however, believes that fleet renewal is moving too slowly, having outpaced demand the global fleet increased by 3.4% in 2023, mainly due to box ship and LNG carrier orders.
That is “below historical averages” said UNCTAD, and only 14% of the new tonnage was alternative fuel ready.
“Failure to accelerate decarbonisation could lead to higher costs, regulatory penalties and a loss of competitiveness as markets increasingly prioritise sustainability,” concluded UNCTAD.
Ref: SeatradeMaritime News
