Panama has no water, Suez pays the Houthis. The prices of transporting goods are skyrocketing

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Shipping plays a vital role in international trade, accounting for up to 80 percent of the global movement of goods, UNCTAD’s head of trade logistics, Jan Hoffmann, said in his January analysis.

The Suez Canal, which is a critical waterway connecting the Mediterranean and the Red Sea, handled about 12 to 15 percent of global trade last year. However, in the past two months alone, as a result of attacks by Yemeni rebels on merchant ships, the volume of trade has fallen by 42 percent, UNCTAD estimates.

Established trade patterns are also disrupted in the Black Sea region, where the conflict in Ukraine has seen substantial changes in oil and grain trade in the past two years.

Due to the attacks in the Red Sea, Europe may fall further behind the US economically

And then there’s the Panama Canal, another key artery of global trade. Although there are currently no safety risks there, the canal is struggling with a severe drought that has reduced the water level in the local lake, on which the canal’s capacity depends. In the last month, this led to a year-on-year decrease of up to 36 percent in total transit. The long-term impacts of climate change on the canal’s capacity raise concerns about lasting impacts on global supply chains, UNCTAD says.

Disruption of these routes means that ships now take longer to reach their destination station. Due to the tension in the Red Sea, most carriers stopped using the Suez Canal and diverted their container ships on the route from Asia to Europe to a longer route through southern Africa. The journey from Shanghai to Rotterdam is now eight to ten days longer.

This, of course, entails increased costs for the overall transport, which has become significantly more expensive. As recently as mid-December, the cost of transporting a classic, approximately 12-meter container from Asia to Northern Europe was less than $1,500 (approximately CZK 34,000), now it is more than $5,500 (approximately CZK 126,000), which is a more than threefold increase.

For Asian cargo bound for the Mediterranean, the price is even higher, reaching almost $6,800, up from $2,400 in mid-December, data from Freightos, which operates a booking and payment platform for international shipping, shows.

While this appears to be a large increase at first glance, it is still well below the record prices that prevailed two years ago during a major crisis in supply chains caused by the coronavirus pandemic. At that time, transporting a container from Asia to Northern Europe cost 15,000 dollars (343,000 CZK), and transporting a container from Asia to the Mediterranean cost almost 14,200 dollars, the AP agency wrote.

China senses opportunity in the Red Sea

“In terms of supply chain disruption, we’re nowhere near what happened during the pandemic,” said Katheryn Russ, an economist at the University of California.

There is a threat of re-inflation of goods

“What’s happening right now is short-term chaos, and chaos leads to increased costs,” said Ryan Petersen, CEO of US supply chain management and logistics company Flexport.

The longer the war in Gaza drags on, and thus the current danger to ships in the Red Sea region, the greater the threat of higher commodity inflation. It is currently falling, but higher transport costs could push it back up. If the trade disruption in the Red Sea lasts for a year, Petersen said, it could increase commodity inflation by as much as two percent, which could also mean even higher interest rates that dampen economic activity, the AP reported.

“Bottom line, higher transport costs are putting upward pressure on goods inflation,” Apollo Management Chief Economist Torsten Sløk added in the warning. He also claims that in such a case the US central bank (Fed) would not have to start reducing interest rates as quickly as is now expected.

The problem in the Panama Canal is of a different nature. Extreme drought has dried up the waterway there, so fewer vessels than usual can now pass through the corridor at once. This leads to traffic jams, and thus again to the overall slowdown of traffic.

The canal typically handles about five percent of global trade flows. But because of the congestion, northbound traffic has dropped from the usual 90 ships to 45 ships a week, Business Insider reported, adding that the waterway is even so congested that authorities have announced auctions for companies to bid for opportunities to jump the queue. One Japanese transport company paid up to four million dollars (CZK 91.8 million) in this way in November.

Although the Panama Canal connects two oceans, the Atlantic and the Pacific, as far as water is concerned, a local lake is key for it, which is used to balance the levels of both oceans. And that depends on rainfall, which is less.

A traffic jam forms in front of the Panama Canal. 200 cargo ships are waiting in the queue

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The article is in Czech

Tags: Panama water Suez pays Houthis prices transporting goods skyrocketing

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