Whether due to political instability, armed conflict or global warming, contemporary crises are increasingly exposing maritime gateways (straits, shipping channels) to unexpected disruptions in traffic. Faced with these imponderables, the maritime transport system — 80% of the volume of world trade in goods, according to UNCTAD (United Nations Conference on Trade and Development) — is adaptable, but only up to a certain point. While the costs caused by temporary shocks can be absorbed, more serious disruption scenarios could have a significant impact on international trade and global economic stability.
There are around 200 narrow passages, navigation channels or maritime straits in the world. Strategic chokepointsby definition, shallow and narrow, controlling the opening of major shipping lanes, these bottlenecks, linking two bodies of water located along international maritime lines of communication, can be responsible for congestion or even a halt in traffic. Disruptions can be circumscribed and temporary, as in the case of the Ever Given incident in 2019, a 400-metre supertanker grounded in the Suez Canal.[1] They can also be long-lasting and far-reaching, following international sanctions for example. Finally, they can have systemic and global implications, calling into question the world economy, such as a hypothetical scenario involving a blockade of the Strait of Hormuz, through which 20% to 30% of the world’s crude oil passes every year. While almost 90% of the oil produced in the Persian Gulf leaves the region on tankers that have to pass through this 55-kilometre-wide bottleneck, none of the existing land-based solutions — pipeline, oil pipeline, lorry — would offer a viable alternative in the event of a closure.
Assessing the criticality of straits
The strategic importance of shipping lanes depends on the availability of alternative routes and sources of supply. For example, the risk of supply chains being disrupted can be easily reduced when an alternative route is available, as in the Strait of Malacca, causing only minimal delay; it is far more significant if the only alternative route involves a much longer transit time (Suez Canal, Panama); it becomes major if no obvious alternative sea route is available — this applies in particular to the Turkish Straits. The Ukrainian wheat crisis, prevented from transit by the Russian navy in 2022, underlined the importance of this type of bottleneck, through which world exports have tripled in 20 years, reaching more than 30% before the 2022 invasion. With traffic disrupted, the spectre of a famine potentially affecting 400 million people quickly emerged, underlining the extreme vulnerability of global food supply chains to the opening up of sea lanes.[2] While the scenario of a Ukrainian wheat crisis is remote at the time of writing, the tensions that have arisen around the Panama and Suez canals at the end of 2023 are raising new questions about the resilience of global supply chains.
Panorama of maritime straits
Source: Peri Srinivas, “Revenge of Geography – Maritime Chokepoints and Supply Chains”, Periscope, 4 January 2024.
Suez and Panama, the accumulation of crises
Every year, 40% of all US container traffic passes through the Panama Canal (US$270 billion a year). The Suez Canal, meanwhile, handles between 12% and 15% of world trade, according to UNCTAD. An accumulation of crises leading to a sharp drop in traffic at both these crossing points simultaneously has exposed supply chains to unprecedented tensions this year, which could become a prelude to more regular blockages.
Since the end of 2023, the Suez Canal has been the victim of Houthi attacks on ships sailing up the Red Sea, which have forced the main shipowners to divert their vessels. Of the 620 or so vessels operated by CMA-CGM, only a handful still pass through if they are escorted by warships. Most of them are rerouted via the Cape of Good Hope, at the cost of calling at ports, particularly in Morocco. And when the port of Tangiers is saturated, alternatives are needed in Algeciras or Valencia in Spain. As well as causing Cairo to lose almost 50% of its canal-related revenue, this route, which extends navigation from 10 to 14 days, has exposed companies to significant cost increases and uncertainties. A February 2024 survey of exporting members by the British Chambers of Commerce found that more than half (53%) of manufacturers and retailers had been affected by the Red Sea crisis. Some reported price rises of 300% for container hire and an extra four weeks added to delivery times.
At the same time, the Panama Canal, a natural alternative route from Europe to Asia, was experiencing record drought levels not seen since 1950[3] under the combined influence of climate change and the El Niño phenomenon. Depriving the canal and its watersheds of the depth needed to operate the locks that move ships up and down the 80-kilometre passage between the Atlantic and Pacific oceans, the phenomenon has forced the canal authority to conserve water, gradually reducing passages from 36-38 ships a day in normal times to 22 ships in December 2023. In the future, scientists say that climate change could prolong the periods of drought experienced by Panama this year.[4]
Number of monthly transits in Suez and Panama Canals, October 2021-January 2024
Source: UNCTAD.
Climatic consequences
From an economic point of view, the consequences of these two combined crises seem to have been contained, given the stocks available to companies and the low share of maritime transport in the final price of goods, which fluctuates between 1% and 5%. On the other hand, the impact of these disruptions on the decarbonisation of logistics chains is more worrying. The increase in rerouting amplifies the carbon footprint of ships on two levels[5] longer journeys and higher consumption per kilometre. As they have to cover longer distances, shipowners are being strongly encouraged to revert to slow steaming, a maritime practice that consists of reducing ship speed to save fuel and reduce greenhouse gas emissions. For container ships, a 1% increase in speed generally leads to a 2.2% increase in fuel consumption. Given the longer distances involved in diverting the Suez Canal to the Cape of Good Hope, UNCTAD estimates the increase in greenhouse gas emissions for a round trip between Singapore and Northern Europe at 70%.
Spiking vessel sailing speed at the start of the Red Sea crisis and easing in early 2024 (in knots, seven-day moving average, 7 October 2023-13 February 2024)
N.B.: container ships over 13,500 TEU (20-foot equivalent units).
Source: UNCTAD.
Alternative routes are unavailable in the short term
In the short term, there are few alternatives to the congestion of the sea crossings, the most obvious opportunity being the opening of new sea routes in the polar zones as the pack ice thaws, although this will not offer a viable alternative for several years. While the Siberian route has already been partly exploited, the same cannot be said of the Northwest Passage in northern Canada. Made up of a myriad of islands that make navigation difficult, this route shortens the journey between Europe and Asia by around 6,000 kilometres compared with transit via Suez and Malacca. For the time being, it is impassable and cannot provide a permanent alternative to the Panama Canal and Cape Horn, the two current routes connecting the Atlantic and Pacific oceans. According to an article published in The Cryosphere, by the middle of the century, navigation windows in this zone should not exceed three months a year, which would still be insufficient.
The North-West Passage, a sea route of the future?
Source: Brève marine, no. 285, 25 April 2024, French Ministry of Defence.
Towards a new paradigm for logistics?
Ultimately, in the absence of alternative routes, logistics could become the main adjustment variable for economic players. Guided by paradigms aimed at optimising the efficiency, responsiveness and sustainability of operations, logistics could undergo a complete paradigm shift.
Until 2020, logistics was based on the principle of strict sufficiency, the best incarnation of this paradigm being the ‘just-in-time’ approach, developed on the model of Japanese companies such as Toyota in the 1980s and then massively disseminated. Designed to reduce stocks and improve the efficiency of logistics, this strategy presupposed confidence in supply chains to deliver just-in-time products quickly, with companies stocking only the components they needed immediately, saving the funds required to maintain extensive storage facilities. This production and distribution system is now being called into question.
The Covid-19 pandemic and the war in Ukraine have revealed critical vulnerabilities in global maritime supply chains, with these crises leading to port closures, labour shortages and increased freight costs, severely disrupting trade flows. The above-mentioned blockages in the straits exacerbate the risks.
The supply disruptions caused by these changes have led to a renewed emphasis on the need to build up strategic stocks (for the State and for businesses). They have also led to calls for greater domestic manufacturing capacity and a regionalisation of supply chains through reshoring or relocation to nearby friendly countries (nearshoring and friendshoring), so that production guarantees that orders are met on time. In Europe, such an approach would rely more on countries such as Turkey, the Maghreb or Eastern Europe, where supply lines would be shorter.
But a point of balance has yet to be determined. A World Bank analysis from 2021 warns, for example, against widespread repatriation. In the report, the experts said: “However, it is premature to conclude that companies should or will change course from ‘just-in-time’ global value chains (GVCs) to ‘just-in-case’ GVCs. Shorter GVCs and localised production are not necessarily less vulnerable to shocks.” In the future, supplier diversification and relocation could be costly and impractical for highly complex products. In addition, maintaining a larger inventory and creating redundant capacity could lead to inefficiency in many industries.
In all cases, taking account of the risks of disruption or interruption to supply chains is becoming a key element to be integrated into the long-term strategic orientations of companies and governments.
——————–
N.B.: this article has been translated from French by DeepL, and revised by the author and Futuribles.
-
The BBC estimates that 9.6 billion US dollars worth of goods are blocked there every day. ↑
-
Chatham House highlights the major role played by 14 strategic bottlenecks in feeding 2.8 billion people. In 2000, 42% of world cereal exports were shipped through one or more maritime bottlenecks; by 2015, this figure had risen to 55%. ↑
-
Cumulative rainfall in the Panama Canal catchment reached 1.85 metres, compared with a historic annual average of 2.6 metres. ↑
-
World Trade Report 2022: Climate Change and International Trade, WTO (World Trade Organization), 2022, p. 8. ↑
-
The recent inclusion of maritime emissions in the European Union Emissions Trading Scheme, with a distance-based carbon tax, is likely to drive up costs further, with a potential increase of 3% to 5% passed on to consumers, according to the World Economic Forum. ↑
