Disruptions to Global Trade Sea Routes

General Studies Paper -3

Context: The United Nations Conference on Trade and Development (UNCTAD) has raised alarms on escalating disruptions to global trade due to the geopolitical tensions and climate change affecting the world’s key trade routes.

Waterways

• Waterways are the most suitable and cheapest for international trade.
• International trade is carried out through ports and harbours which are connected with hinterlands through railways, roads or inland waterways.
• It can be classified as national and international transportation.
• The water transport can be divided into two parts: Inland water transport and Ocean water transport.

Major Choke Points in International Trade Sea Route

• Strait of Hormuz:Located between the Persian Gulf and the Gulf of Oman, the Strait of Hormuz is a crucial passage for oil shipments from the Middle East.
• A significant portion of the world’s oil supply passes through this choke point.
• Malacca Strait:Situated between the Malay Peninsula and the Indonesian island of Sumatra, the Malacca Strait is one of the busiest waterways globally.
• It connects the Indian Ocean to the South China Sea and the Pacific Ocean, making it a key route for trade between Europe, the Middle East, and East Asia.
• Suez Canal:Connecting the Mediterranean Sea to the Red Sea, the Suez Canal is a vital shortcut for ships traveling between Europe and Asia.
• It significantly reduces the travel distance and time compared to the alternative route around the southern tip of Africa.
• Panama Canal: Linking the Atlantic and Pacific Oceans, the Panama Canal is crucial for maritime trade between the Americas, Europe, and Asia.
• It allows ships to bypass the lengthy and treacherous journey around the southern tip of South America.
• Taiwan Strait:Separating Taiwan from mainland China, the Taiwan Strait is essential for shipping in the East Asian region. It is a heavily trafficked waterway for goods moving between China, Taiwan, Japan, and other Asian nations.

Disruptions on Trade Routes

• Suez Canal: UNCTAD estimates that the weekly transits going through the Suez Canal decreased by 42%over the last two months.
• About 12 percent of global trade passes through the Suez Canal.
• Ships are now being forced to take the Cape of Good Hope route, which entails circumnavigating the entire African continent, it is now taking them 37–41 daysto reach their destination as compared to 27 days through Suez Canal.
• Panama Canal:Simultaneously, the Panama Canal, a pivotal conduit for global trade, is grappling with diminished water levels, resulting in a staggering 36% reduction in total transits over the past month compared to a year ago.
• Panama Canal accounts for six percent of global trade.
• A vessel taking the Cape Horn route, instead of the Panama Canal, takes 18 additional days of travel time.
• The crisis in the Red Sea, marked by Houthi-led attacks disrupting shipping routes, has added another layer of complexity.

Implications

• Increase in Trade Cost:The cumulative effect of these disruptions translates into extended cargo travel distances, escalating trade costs, and a surge in greenhouse gas emissions from shipping having to travel greater distances and at greater speed.
• Avoiding the Suez and Panama Canal necessitates more days of shipping, resulting in increased expenses.
• Environmental Concerns:Additionally, ships are compelled to travel faster to compensate for detours, burning more fuel per mile and emitting more CO2, further exacerbating environmental concerns.
• Increases in Food and Energy Prices:Prolonged interruptions, particularly in container shipping, pose a direct threat to global supply chains, potentially leading to delayed deliveries and heightened costs.
• Energy prices are witnessing a surge as gas transits are discontinued, directly impacting energy supplies, especially in Europe.
• Impact on developing countries: Developing countries are particularly vulnerable to these disruptions.

Way Ahead

• The organization emphasizes the urgent need for swift adaptations from the shipping industry and robust international cooperation to navigate the rapid reshaping of global trade dynamics.

The current challenges underscore trade’s vulnerability to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions especially in support of countries more vulnerable to these shocks.