British Report: Red Sea and Panama Canal Shipping Disruptions Cost Global Economy $1.25 Trillion

NYN | Reports and analyses

A report by the British data analysis group Russell Group revealed that shipping disruptions in the Red Sea and the Panama Canal have cost the global economy an estimated $1.25 trillion from October 2023 to May 2024. These disruptions have caused delays in shipping schedules and increased transportation costs for companies reliant on global supply chains.

In its report titled “Why Insurers Should Monitor Their Transit Route Accumulations,” published by TradeWinds, a specialized shipping industry news outlet, Russell Group highlighted that the militarization of the Red Sea by the US and the UK to protect Israel from Houthi attacks has had a direct impact on global trade. Key industries affected include essential goods such as crude oil, plastics, automobiles, and clothing.

At the same time, restrictions on trade through the Panama Canal due to drought in 2023 further impacted the transport of liquefied petroleum gas (LPG) and crude oil, adding to the complexities of maritime transport, according to the Russell Group report.

The blockage of two of the world’s largest shipping routes disrupted global shipping schedules and supply chains, forcing ships to choose longer alternative routes, which added delays and costs for businesses dependent on shipping.

The report noted that spot shipping emerged as “the biggest winner,” as longer routes reduced the availability of ships and drove up spot freight rates.

Suki Basi, CEO of Russell Group, commented on the global economic impact of these disruptions, highlighting that they caused significant delays and increased costs for companies. He noted that the rise in spot freight rates was a direct result of the extended alternative routes.

Basi emphasized that the figures presented by his company reflect the true economic impact of maritime disruptions, beyond just the number of passing ships. He added that these disruptions affected the entire maritime supply chain, leading to increased congestion at major ports and further delaying ship arrivals.

He also pointed out that this crisis comes at a challenging time for ports already dealing with other risks such as labor disputes and port capacity issues.

Basi predicted that companies might begin ordering goods earlier to meet holiday season demand, potentially adding more pressure to already strained supply chains.

The report also indicated that while large companies may be able to adapt to the additional costs, small and medium-sized enterprises (SMEs) would struggle to absorb them.

Furthermore, the maritime sector has begun exploring technological solutions to mitigate the effects of disruptions, such as improving shipment tracking technologies and utilizing artificial intelligence to predict delays.

The report suggested that these disruptions could prompt countries reliant on these trade routes to seek new trade partnerships or alternative routes, potentially reshaping global geopolitical relations.

It also emphasized the need for increased investment in port infrastructure to enhance their capacity to handle rising shipping volumes and reduce delays caused by congestion.

The report warned that if these disruptions are not addressed, they could continue to impact global trade, placing further pressure on both companies and consumers.

In conclusion, the report underscored the geopolitical and climate crises affecting strategic shipping areas like the Red Sea and the Panama Canal, stressing the importance of strengthening supply chain resilience and urging insurers to closely monitor these risks.