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Global trade facing a double whammy with challenges in Suez and Panama Canals

Since their construction in different centuries, both the Suez and Panama Canals have played transformative roles in global trade, mainly by reducing travel distances and enhancing the efficiency of steamship routes..

Their creation marked significant milestones in maritime history, altering global trade and political landscapes..

These two maritime gateways are classified as Primary chokepoints meaning they are very important passages offering limited cost-effective maritime shipping alternatives with the potential to seriously impair global trade if disrupted..

Suez and Panama Canals
Image : Port Economics, Management and Policy

Historical context of Suez and Panama Canal

The Suez Canal, which opened in 1869, revolutionized the journey from Asia to Europe by circumventing the Cape of Good Hope, reducing the distance by approximately 6,000 km bringing Europe closer to Asia, expanding colonial trade, and solidifying Great Britain’s maritime dominance..

Its strategic importance persists to date, especially for Middle Eastern oil and APAC commercial trade, saving up to 10 days of shipping time..

On the other hand, the Panama Canal, which was completed in 1914, drastically reduced shipping distances between the East and West Coasts of the USA by 13,000 km transforming trade and reducing the transit on major trade routes such as the New York – Los Angeles route by 60%..

Current Crisis and Challenges

However, both these strategic canals are going through some serious challenges which is quickly turning into a crisis for global trade..

In the aftermath of the attack by Hamas on Israel and Israel’s retaliation against Hamas and Gaza, the Houthis of Yemen have escalated their offensive against commercial ships, particularly those seen as having ties to Israel including orchestrating drone and missile strikes on various ships..

There have been several reports that on the 15th of Dec, three ships – MSC Palatium III of MSC on sub-charter to Messina Line, the Al Jasrah operated by Hapag Lloyd, and the Maersk Gibraltar operated by Maersk were attacked in the Red Sea region with both the Palatium and Al Jasrah suffering damages but no injuries/loss of life while Gibraltar had a narrow escape..

These incidents have led to the above companies and other major shipping companies announcing a temporary halt to their operations through the Suez Canal..

As mentioned above, the Red Sea is a critical gateway for East-West trade, especially for oil shipments with the Bab al-Mandab Strait categorized among the world’s most vital maritime routes, facilitating the movement of commodities from the Gulf to the Mediterranean and Asia..

Bab el Mandab
Image : Port Economics, Management and Policy

The recent spike in attacks has also led to increased war risk insurance premiums, imposing significant financial burdens on shipping companies operating in this area and through the Suez Canal..

Amid these developments, Egypt’s Suez Canal Authority has advised that it is closely monitoring the situation.. The Suez Canal is a major source of revenue for Egypt, and the diversion of ships to alternative routes could have significant economic implications..

As of now, a relatively small proportion of ships have opted for the Cape of Good Hope route, but this could change if tensions continue to escalate..

What’s happening in Panama Canal..??

On the other side of the world, the Panama Canal has been facing a severe drought, leading to delays and higher transit fees.. Grain shippers from the U.S. Gulf Coast to Asia are reportedly experiencing longer routes and elevated costs due to vessel congestion and limited transit slots and this situation is expected to continue well into 2024..

It has been reported that as of the 14th Dec, Regular ships face a 27-28 days waiting time, Supersize ships 41-42 days waiting time, and Neo Panamax 9-10 days waiting time Northbound while on the South Bound, these ships are waiting 25-26 days, 21-22 days, and 22-23 days waiting times respectively..

The Panama Canal Authority has introduced new rules for booking slots due to the water crisis.. These include a limit on the number of slots awarded per customer and prioritization of full container vessels in certain booking periods.. Panama Canal Authority has had to reduce the daily transits from around 35 to 22, and 18 by February 2024..

This change is a response to ensure equitable distribution of slots amid reduced transit capacity..

Outlook and the Way Forward

These situations have led to a seismic shift in shipping patterns and could result in profound implications for global trade.. In 2021 we saw the impact of the closure of the Suez Canal when the Ever Given affected passage through the canal..

The simultaneous disruptions in the Suez forcing the rerouting of vessels via Cape of Good Hope due to security concerns and operational constraints in the Panama Canal currently is leading to increased shipping times and costs..

These changes are affecting everything from grain shipping to oil transportation, impacting global supply chains and economies..

As the world’s shipping industry navigates through these turbulent waters, the resolution of conflicts in the Red Sea and effective management of water resources in the Panama Canal is crucial..

The international community’s response to the challenges faced by these two vital maritime gateways will be a determining factor in mitigating the impacts on global shipping and trade..


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Hariesh Manaadiar
Hariesh Manaadiarhttps://www.shippingandfreightresource.com
I am Hariesh Manaadiar, the Founder of Shipping and Freight Resource.. I have been in the dynamic shipping and freight industry for over three decades and have worked in several sectors.. I share my experiences and knowledge of the industry through this blog for those looking for help in the industry.. Stay subscribed for more free useful content about shipping, freight, maritime, logistics, supply chain and trade..

3 COMMENTS

  1. As the war continues and more countries are entering the war siding with different sides the increased war risk insurance premiums, extra surcharges etc. Might become the norm for the shipping industry which inturn will increase the cost of commodities to the end user who will ultimately Face the burden of these increasing prices. As prices rise affordability of imports become a major issue which will disrupt the global supply chain and trade. Many countries in Gulf of Aden and the Red Sea might look for alternative ways such as encourage local production instead of depending on imports or eventually stop trade of certain commodities due to affordability issues which further impacts global trade.

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