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UNCTAD Flags Climate Change and War as Disruptors of Global Sea Trade

  • Published
    27th Jan, 2024
Context

The United Nations Conference on Trade and Development (UNCTAD) raises alarms about the escalating disruptions in global trade. The primary culprits behind this turmoil are identified as the dual impact of climate change and war on crucial sea lanes, specifically highlighting the Black Sea, Red Sea, and Panama Canal.

Background

Rising Tide of Concern:

  • The UNCTAD expresses concerns over the mounting disturbances in global trade, emphasizing the adverse effects of climate change and conflicts on three pivotal sea routes.
  • The statement, issued by the Geneva-based UN body, draws attention to a remarkable surge in container spot freight rates during the last week of December, signifying the highest-ever weekly increase.

Unprecedented Freight Rate Surge:

  • A key revelation in the UNCTAD statement is the unprecedented surge in average container spot freight rates from Shanghai.
  • Rates have skyrocketed by 122%, and for the Shanghai-to-Europe route, the increase is a staggering 256%.
  • The global impact becomes evident as ships seek alternative routes, bypassing the Suez and Panama Canal.

Choke Points:

Initiation of Disruptions:

  • Russia-Ukraine Conflict- led to a blockade of Ukrainian Black Sea ports, impacting the global supply of essential commodities such as wheat, sunflower oil, and maize.
  • The Straits of the Bosphorus and Dardanelles, critical choke points, became focal areas where global trade faced significant bottlenecks.
  • Black Sea Grain Initiative: Collapse of the initiative has further complicated the problems.

Reshaping Trade Patterns:

  • Substantial shifts in oil and grain trades, reshaping established trade patterns.
  • Simultaneously, the Panama Canal, a linchpin for global trade, faced challenges due to reduced water levels, resulting in a significant 36% reduction in total transits over the past month compared to the previous year.

Red Sea Unrest:

  • The Red Sea, connecting the Mediterranean and the Indian Ocean, witnessed disruptions due to attacks by Yemen's Houthi rebels following the Israel-Gaza Conflict.

Ramifications:

Extended Cargo Travel Distances:

  • The cumulative effects of disruptions translated into extended cargo travel distances, heightened trade costs, and increased greenhouse gas emissions.
  • Avoiding traditional routes like the Suez and Panama Canal led to extended shipping days, elevated expenses, and a surge in environmental concerns due to increased fuel consumption and CO2 emissions.

Threat to Global Supply Chains:

  • UNCTAD issues a stark warning that prolonged interruptions, particularly in container shipping, pose a direct threat to global supply chains.
  • Energy prices surge as gas transits are discontinued, impacting energy supplies, especially in Europe.
  • The crisis ripples through global food prices, jeopardizing food security and affecting consumers and producers alike, with developing countries being particularly vulnerable.
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