High freight rates strain supply chains, threaten SIDS, LDCs: UNCTAD

UNCTAD’s Review of Maritime Transport 2024 estimates that global consumer prices could increase by 0.6 per cent by next year as shipping costs filter through supply chains.

Vulnerable economies like SIDS are expected to face an even sharper rise, with consumer prices climbing by up to 0.9 per cent, threatening food security and economic growth.

For SIDS and LDCs, which rely heavily on shipping for essential goods, the rising costs are eroding trade competitiveness. SIDS have already seen their maritime connectivity decline by an average of 9 per cent over the past decade, leaving them disproportionately affected by freight rate volatility.

Freight rates have skyrocketed this year due to rerouted vessels, port congestion and higher operational costs.

As freight rates rise, so do concerns over trade sustainability, economic growth and the global effort to achieve sustainable development goals, UNCTAD noted.

As of October 18, the Shanghai containerised freight index (SCFI) was down by 45 per cent from its 2024 high and 60 per cent below its record level during COVID-19. However, it remained 115 per cent above the pre-pandemic average and more than double the 2023 average.

Beyond the primary trans-Pacific and Europe-bound routes, spot freight rates also surged. Disruptions in key routes through the Red Sea, Suez Canal and Panama Canal have significantly increased freight rate volatility.

Factors like increased shipping distances, heightened fuel consumption and rising insurance premia have all contributed to a ‘perfect storm’ of cost pressures, UNCTAD said in a release.

UNCTAD estimates show that disruptions due to climate-induced low water levels in the Panama Canal contributed 49 percentage points (pps) to the overall 45-per cent rise in the Baltic dry index between October 2023 and January 2024.

Similarly, the Red Sea crisis and Suez Canal disruptions contributed 148 pps to the cumulative 120-per cent increase in the China containerised freight index from October 2023 to June 2024.

Overcapacity in container shipping has mitigated rate volatility, enabling the industry to accommodate increased demand. However, any further disruptions or spikes in demand could expose risks and increase freight rates, underlining the need for effective supply management to balance supply and demand, UNCTAD cautioned.

UNCTAD called for urgent, coordinated action to reduce volatility in freight markets, mitigate impacts and support vulnerable economies.

This includes monitoring freight market trends to detect cost spikes early and provide timely support to vulnerable economies; strengthening international cooperation to reduce chokepoint disruptions and rerouting pressures, helping to stabilise shipping routes and reduce costs; and investing in port and infrastructure upgrades to alleviate congestion and improve supply chain efficiency, especially in key transshipment hubs.

Shipping routes should also be diversified and regional trade initiatives promoted to reduce dependence on long-distance routes, easing pressure on global shipping lanes, UNCTAD suggested.

Low-carbon shipping and port solutions should be supported to mitigate the environmental impacts, improve efficiency and drive a sustainable transition for the maritime industry, it added.

Fibre2Fashion News Desk (DS)