Drought and geopolitical tensions are affecting maritime routes and trade

Drought and geopolitical tensions are affecting maritime routes and trade

Global maritime trade has not had the best luck since the middle of last year. Two of the main routes, which represent 18% of global traffic, have been affected by severe droughts and geopolitical conflicts in Middle East.

On the one hand, the main reason for a decrease in the volume of ship traffic, in the case of the Suez Canal, have been the tensions generated by the attacks by the Houthi rebel group from Yemen on the boats that cross the Red Sea, representing their support for Palestine in the war that is taking place between Israel and Hamas.

On the other hand, in the Panama Canal, due to the drought generated by the El Niño phenomenon, the levels of two artificial lakes have reduced the capacity of the isthmus to allow ships to pass through the lock system used. This has generated a loss of US$300 million.

Restricted passage through the Suez

As a result of the war between Israel and Hamas, the Yemeni Houthi rebel group began offensive actions against all vessels, especially American ones and those of those countries that support Israel, to prevent their transit to the Suez Canal. Tensions rose on Friday, January 12, when the United States and the United Kingdom attacked the group with missiles.

In the midst of this conflict, maritime traffic through that trade route has seen a notable decrease compared to November of last year. According to Alphaliner, while in that month, 66% of the vessels included the canal on their route to the Mediterranean and Northern Europe, only 3% did so during the first week of the year. Given this circumstance, traffic through the Cape of Good Hope (in southern Africa) has increased during 2024: while in November 2023, 13% of ships skirted the African coast, during the first week of this year 85% of the vessels transited this route.

The adverse effects of this decision lie in an increase in container shipping rates and the addition of 10 travel days to connect Asia with Europe and the Mediterranean. Fares have risen 173% to reach values ​​of US$5,175 on the Shanghai-Genoa route, for example.

“For us, this will mean longer transit times and probably the disruption of supply chains for at least a few months,” Vincent Clerc, chief executive of shipping giant AP Moller-Maersk, said this week.

Drought in the Panama Canal

One of the most important maritime transport passages in the world due to the reduction in time and distance to travel is the Panama Canal. It is estimated that between 500 and 510 million tons of cargo are moved each year, representing 6% of global maritime trade.

However, since June of last year, droughts caused by the El Niño phenomenon have caused a reduction in the level of the Gatún and Alhajuela artificial lakes, freshwater “feeding” points, key for the transit of ships that They cross the continental shelf that stands between the Caribbean Sea and the Pacific Ocean.

By way of explanation, the Panama Canal works with a system of locks. The locks are a series of gates that level the amount of water depending on the sector through which a ship transits. As the Caribbean entrance to the isthmus is 25.9 meters above sea level, Gatun Lake “releases” fresh water so that sea level rises and boats begin transit.

However, due to the drought, the Canal authorities have had to restrict the draft of the vessels, that is, empty the cargo to go lighter and so that the demand for fresh water is not so high. One of the consequences of this situation is that traffic jams have been generated at both ends of the isthmus, which has generated longer transit times for goods.

“Usually, between 40 and 50 ships cross the canal daily, but that number has had to be reduced to about 24 ships, which will apply from February 2024,” said José Cervantes, general manager of the Panama office of the Agunsa shipping agency told DW.

The contingency measure taken by the Danish transport conglomerate, AP Moller-Maersk, is to use a railway that functions as a land bridge to transport cargo.

The administrator of the Authority Panama CanalRicaurte Vásquez explained that at the end of last year, losses of US$100 million were recorded in each of the months that made up the first fiscal quarter of 2024, which could rise to US$800 million. “The drought in the Canal will impact operating costs and delivery times. Colombia is not directly affected because ships from China arrive in Buenaventura,” explained Javier Díaz, president of Analdex.

Other consequences that the low level of the lakes will bring will be an increase in toll costs and extra costs in freight to equal the losses generated; longer travel times between Asia and the east coast of the United States and it is estimated that there will be an increase in the price of the merchandise transported.