2024-10-23 09:07:00
The decline in shipping traffic in the Suez Canal – and to a lesser extent the Panama Canal – is expected to increase prices by an average of 0.6% globally by the end of 2025, according to UNCTAD calculations. The increases concern imported products and will especially affect small island developing states and the poorest countries.
Over 80% of the world’s imported products, including cereals and basic foodstuffs, transit by sea. Any disruption to global shipping therefore has a direct impact on the cost of many everyday products. After the Covid-19 pandemic, which had already caused an increase in prices, problems have accumulated for commercial ships. Tensions in the Red Sea near the Suez Canal, or even drought in the Panama Canal, have halved the number of boats passing through the world’s two most important canals, compared to post-pandemic peak activity. This is what he underlines the latest UNCTAD report (United Nations Conference on Trade and Development), released Tuesday.
The Egyptian economy has been hit hard
While the situation in the Panama Canal has improved since February, the situation in the Suez Canal is however particularly complicated. Even in Egypt, revenues generated by the Suez Canal have decreased by almost 50% since the beginning of the year. A hard blow for the Egyptian economy, already in difficulty. Cairo struck a deal with the International Monetary Fund (IMF) last March, securing $8 billion in aid in exchange for unpopular economic reforms, such as cutting subsidies on bread and gasoline.
However, Egyptian President Abdel Fattah al-Sissi warned late Sunday that he may have to renegotiate the deal due to war in its neighbors, particularly Sudan and Gaza.
Tensions in the Red Sea and diversions across the Cape of Good Hope
Before Houthi rebels began attacking ships in the Red Sea to show support for the Palestinians, 10% of global shipping traffic passed through the Suez Canal. Since late last year, most container ships have detoured via South Africa’s Cape of Good Hope. Ship traffic carrying oil and gas has also declined significantly in the canal.
Direct consequences: increase in fuel and insurance prices
Longer or more dangerous trips also mean higher prices, due to additional fuel costs, but also increased insurance costs. UNCTAD estimates that disruptions related to attacks by Houthi rebels and drought in Panama will push prices up 0.6% by the end of 2025. That doesn’t sound like much, but it’s an average: increases will therefore be more pronounced for some products, and will not affect all countries equally.
Small island states and least developed countries on the front line
« The longer the trips, the more the prices increase. And it is consumers who ultimately pay, particularly in small island developing states and least developed countries, who depend on ships to supply food, medicines and basic necessities.” emphasized Shamika Sirimanne, director of UNCTAD’s technology and logistics division, during a press conference this Tuesday.
Finally, Climate risks, such as increased storms and hurricanes, also contribute to rising shipping and insurance pricesdue to damage and delays caused by natural disasters.
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