Beyond the canals
Posted on 23rd January 2024 at 09:54
Beyond the Canals: How the Suez and Panama Shipping Crises are Impacting Global Trade
Since 2020, the maritime industry has experienced a series of unprecedented shipping crisis. COVID-19 pandemic, the 2021 Suez Canal blockage, and Russian invasion of Ukraine implications have deeply affected the smooth flow of goods between continents. With the shipping industry relying on strategic maritime choke points, crisis that have unfolded in these strategic waterways in recent times have sent shockwaves through the global supply chain. Just a mere three years later, we are now at the crossroads of two major choke points’ bottlenecks. In this article, we summarize the most up-to-date information regarding the Suez and Panama canals shipping crises of 2023-2024.
The Suez Canal Crisis:
Since its inauguration in 1869 the Suez Canal traffic grew to become one of the vital water passages in the world, connecting the Mediterranean and Red Seas. 12% of the world maritime trade passes through the Suez Canal. However, this traffic relied on two other choke points: the Strait of Gibraltar and The Strait of Bab El-Mandeb. On November 2023, the geopolitical escalation in the Red Sea as responses to the Israeli-Hamas war in Palestine have interrupted the smooth flow of traffic from Bab El-Mandeb to the Suez Canal. The Huthis militants in Yemen continues targeting merchant ships heading to Israel, resulting in ship blockage in Bab El Mandeb. As a response, America formed Operation Prosperity Guardian, an international maritime task force, to safeguard shipments. However, despite these efforts, the Suez Canal's traffic saw a significant decrease of 30% compared to the same period the previous year. Business leaders are expecting the global chaos to continue for up to six months.
The Panama Canal Predicament:
The Panama Canal, a strategic maritime route connecting the Atlantic Ocean with the Pacific Ocean, is currently facing a critical juncture. This vital waterway has long played a pivotal role in global trade, facilitating the movement of goods between the world's largest bodies of water. However, a severe drought since last year has led to a substantial reduction in water levels.
The canal's locks system depends primarily on the Gatun Lake water reservoir to activate its mechanisms. Yet, low water levels have forced Panama Canal authorities to limit daily ship crossings to 24, representing a 36% decrease compared to the usual rate.
The Panama Canal Authority now anticipates potential losses of $500 million to $700 million in 2024, a significant increase from the initial projections of $200 million.
El Nino weather phenomenon and The far-reaching impact of climate-related challenges on the Panama Canal raises serious concerns about the canal's reliability for international shipping and its broader implications for global trade.
● Vessel Re-routings: Ships originally bound for the Suez Canal are being rerouted via the Cape of Good Hope, adding 3500 nautical miles, about 10-14 days and consuming an additional 1.6 million gallons of fuel. This include MSC, Maersk, Evergreen Line, HMM, BP, Equinor, Shell. Over 103 container ships opted for a longer route around Africa to avoid potential attacks.
● Cargo Container Supply Crunch: The ripple effect of vessel re-routing and Panama Canal traffic jam is poised to induce a cargo container supply crunch similar to COVID-19 scenario where containers are not handled as fast as needed, reducing the global capacity.
● Increase in Shipping Rates: According to the Shanghai Containerised Freight Index (SCFI), the Red Sea crisis have led to a more than 300% increase in shipping costs since November 2023.
● Shift to Multimodal Transport: Shippers, freight forwarders and logistics companies consider sea-air cargo combinations and alternative routes to Red Sea. Meanwhile shipping giant Maersk has already altered its OC1 service to Panama Canal Railway.
● Potential Energy Market Crisis: The detour on Cap of Good Hope result on increased bunker refuelling demand while Huthits hickaging risk to endanger a route of 11% of US crude oil imports. Consequently, all oil blends have climbed between 7% to 10% and risk to top 30% by March.
The geopolitical weaponization of supply chains coupled with Panama Canal water shortage not only trigger shipping distruptions but also threaten to put the global economy into recession.
In the face of the ongoing shipping crises, our company remains resolute in its commitment to ensuring uninterrupted service for our customers.
We're monitoring this situation closely and will be keeping all our customers updated on any developments.
Please contact us if you have any questions or concerns.
Tagged as: containers, export, freight forwarders, import, panama canal, sea freight, Suez canal, supply chain, trade
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