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Thursday, February 15, 2024

Cargo Through Suez Canal Plummets by 45%

Houthi attacks in the Red Sea lead to a 45% decline in Suez Canal Cargo, triggering global trade disruptions, rising shipping costs, and geopolitical challenges with potential impacts on inflation, energy prices, and food security.

The shipping industry is grappling with the far-reaching consequences of the Suez Canal crisis, as container shipments through the canal experienced an 82% reduction in the week ending January 19 compared to early December. The disruption has led to a sharp increase in spot container rates, with a record-breaking weekly surge of $500. This surge not only affects Asia-to-Europe shipments but also impacts the non-Suez route to the US west coast.

The longer alternate route around Africa, prompted by the Suez Canal diversion, is proving to be more than a mere inconvenience. The additional two weeks it adds to voyages not only raises shipping costs but also restricts the availability of shipping containers to other clients. This logistical challenge, combined with limited container supply, is contributing to a spike in container prices, exacerbating the strain on the shipping industry.

Environmental and Economic Impacts

The Suez Canal crisis is not just an economic challenge; it carries environmental consequences as well. Ships opting for longer routes are not only burning more fuel but also traveling at faster speeds to compensate for detours, resulting in a rise in greenhouse gas emissions. The environmental toll adds another layer of concern amid the already complex challenges faced by the shipping industry.

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Energy prices, although stable so far due to weak consumer demand and high inventories, are showing signs of vulnerability. Oil and liquid natural gas (LNG) tankers are avoiding the Red Sea, even those from Qatar, a key ally of Hamas. The geopolitical intricacies further unfold as President Joe Biden’s decision to freeze approval for LNG products aligns with environmental concerns, impacting the delicate balance of global energy prices.

Implications on Consumers, Developing Nations, and Egypt

Consumers worldwide may soon feel the impact of higher shipping costs, with UNCTAD’s Jan Hoffmann predicting that these costs will be reflected in volatile food prices. Developing nations, already grappling with crises, are at particular risk of exacerbated humanitarian emergencies as they cannot afford to absorb the escalating costs. The longer-term effects on consumer prices may take up to a year to materialize, potentially affecting global retailers like Ikea and Walmart.

As for Egypt, the nation is navigating an economic storm, with a projected slowdown in GDP growth and inflation rates hitting record highs. The loss of 40% of Suez Canal revenue intensifies Egypt’s economic challenges, and the political complexity of President Abdel Fattah el-Sisi’s response underscores the intricacies of regional dynamics.

The Suez Canal crisis presents an unprecedented challenge to global trade and maritime logistics. Navigating these challenges requires a coordinated international effort to address geopolitical tensions, enhance maritime security, and establish resilient trade routes that can withstand unforeseen disruptions. The implications are far-reaching, affecting not only the shipping industry but also economies, consumers, and the delicate balance of environmental sustainability.