According to the report of Nihon Keizai Shimbun on April 24, the world shipping industry is facing a "simultaneous crisis": global ships cannot navigate from the two major canals, which are the key points of international logistics. Due to water scarcity issues that cannot be eliminated, the Panama Canal in Central America is expected to fully lift its navigation restrictions by 2025. Due to the ongoing chaos in the Middle East, businesses are forced to abandon the Suez Canal in Egypt. It is not yet possible to predict when normal will return.
The Panama Canal connects the Atlantic and Pacific oceans. Since the implementation of control measures in 2023, ships have been waiting for navigation at the entrance of the canal, resulting in frequent congestion. The reason for the restrictions on navigation is that the lakes supplying water to the Panama Canal are short of water. The once in a few decades low rain weather used to cause lake water levels to drop, but now it happens every three to five years due to the impact of climate change. In addition, the increase in population around the lake has also led to an increase in domestic water consumption.
The Panama Canal is an important waterway for transporting food and energy from the east coast of North America and the Gulf of Mexico to Asia. After the implementation of navigation restrictions on the Panama Canal, alternative routes arrived in Asia from North America via the Mediterranean and Suez Canal. However, in October 2023, the conflict between Israel and Hamas dealt a heavy blow to the world's shipping industry, which relies on the Suez Canal route.
Since mid December last year, incidents of attacks by the Hussai organization on foreign merchant ships have occurred, and world shipping companies have cancelled their access to the Suez Canal. The risk of escalating conflict has increased, and there is currently no prospect of restoring the route.
Due to the simultaneous crisis of the two major canals, most ships were forced to detour around the Cape of Good Hope in Africa. This may lead to a shortage of cargo ships and soaring transportation costs.
The shipping cost for a 40 foot container from Shanghai to the East Coast of the United States is $6652, which is 2.9 times higher than the end of November 2023. During the spread of the COVID-19, the chaos of the supply chain led to a 40 foot container freight of about 12000 dollars. Although the current freight rates are lower than the peak during the pandemic, the risk of poor sea freight is once again presented to the world.
According to statistics from the United Nations Conference on Trade and Development, over 80% of world trade is achieved through maritime transportation. The advantage of sea transportation is that the single transportation volume is higher than that of land and air transportation. As a low-cost and safe means of transportation, sea freight has always contributed to the growth of the world economy.
The simultaneous crisis in the maritime artery suggests that the world is shifting from an era of safe and free transportation of goods to a new normal of frequent chaos.
Climate change and geopolitical risks lead to sustained instability, which can easily lead to upward pressure on transportation costs. Although freight rates have fallen slightly, they are still higher than pre pandemic levels.
McKinsey&Company, a consulting firm in the United States, pointed out: "A survey shows that there have been predictions that supply chain disruptions will last for more than a month every 3.7 years. It is expected that the frequency of disruptions will become more frequent in the future, and it is necessary for businesses to prepare for future crises."
According to the United Nations Conference on Trade and Development, due to factors such as detours, the average sailing distance of container ships and oil tankers in 2024 will increase by 2% compared to the previous year. If the sailing distance increases, the fuel and labor costs also increase. Each shipping company hopes that the shipper will bear the cost, but as transportation costs are passed on to the price of the goods, it will ultimately have an impact on consumers.
For countries hoping to curb inflation, high shipping costs are also a risk factor. According to the analysis of the International Monetary Fund, the deterioration of the situation in the Middle East has led to a 15% increase in oil prices, and container shipping costs will increase by 2.5 times from 2024 to 2025.
