The writer is the head of trade logistics at Unctad’s division on technology and logistics

Recent attacks on commercial shipping in the Red Sea have underscored the critical importance of maritime trade, which accounts for 80% of global trade volumes. The Suez and Panama Canals, essential for east-west trade and especially neighbouring countries’ commerce, face significant disruptions. Conflict and climate-induced droughts have almost halved transit through these canals, respectively. Based on the latest 28-day average, the number of ships transiting through the Suez Canal is down 51% and the Panama Canal down 48% compared with their peak. Ships and trade have been forced to reroute, highlighting the fragility of today’s international shipping networks.

The Suez Canal, a vital artery for global trade, has seen ships divert around the Cape of Good Hope following Houthi rebels’ attacks in the Red Sea. This significantly increases travel distances. An oil tanker going from the port of Ras Tanura in Saudi Arabia to Rotterdam must travel 74% further than normal, while a container shipped from Singapore to the same Dutch port requires a 42% longer journey. 

Shipping is a highly international business, and shooting at a commercial cargo ship is like shooting at the world. A typical ship may be built in South Korea, crewed by Filipino seafarers recruited through a crewing agency in Cyprus, owned by a German investment fund, inspected by an Indian classification society, registered under the flag of the Marshall Islands, insured in Norway, fuelled at a bunkering station in Singapore, and operated by a liner shipping company in Denmark. The ship might carry consumer goods, food, medical supplies and industrial spare parts for several thousands of importers and exporters from around the world. 

Regional economies hit hardest

What’s more, foreign trade for several east African countries is highly dependent on the Suez Canal. Sudan is the most reliant, with 34% of its trade volume passing through the canal. That figure is 31% for Djibouti, 15% for Kenya and 10% for Tanzania. By comparison, although more important in absolute terms, only 7% of Germany’s foreign trade volume is channelled through the Suez Canal. 

Meanwhile in the Americas, the capacity of the Panama Canal has dwindled due to climate change, which is affecting its ability to serve as a critical conduit for international trade. The US is its biggest client, accounting for 72% of the canal’s transiting tonnage. But it is also important for countries on the west coast of South America. Approximately 22% of total Chilean and Peruvian foreign trade volumes, and 26% of Ecuador’s, travel through the canal. 

More on supply chains:

• EU and China to pursue trade transparency mechanism
• Opinion | Tanzania will become a gateway to African trade
• Opinion | Why Africa's future is now

Building supply chain resilience

The redirection of maritime traffic due to crises in the Red Sea has led to longer shipping distances. This is exacerbated by the war in Ukraine, which had already extended haulage distances for commodities such as oil and grain. The consequence is a significant surge in freight rates, with record increases reported on routes from Asia to Europe and the west coast of the US. It also exacerbates greenhouse gas emissions due to the higher speeds needed to compensate for lost time, counteracting efforts to reduce the shipping industry’s environmental footprint. The re-routed journey from Singapore to Rotterdam, via the Cape of Good Hope, emits more than 70% more greenhouse gas than traveling via the Suez Canal.

Both canals’ crises highlight the urgent need for supply chains to become more flexible and resilient through diversification, process optimisation and collaboration, especially in the areas of data and information exchanges. On top of trade disruption, the volatility and uncertainty stemming from these crises deter investments in the shipping industry, crucial for its modernisation and the transition to low-carbon fuels. The global supply chains must adapt to the evolving landscape of international shipping by reducing dependency on vulnerable maritime chokepoints, diversifying transport routes and investing in sustainable shipping solutions. These are imperative to mitigate the impact of ongoing disruptions on global trade.

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