Written by Malak Wagih
Research Intern,
Jindal Centre for the Global South,
O.P. Jindal Global University, India
Introduction
The maritime industry acts as the backbone of the global supply chain accounting for more than 70% of the traded commodities, resources, and services(UNTCD, 2024). The complicated nature of maritime networks and marine channels acts today as a key for modern economies since numerous countries today rely on them heavily to ensure efficient supply chain functioning; Where the supply chain is the process of producing and delivering a product it consists of several steps including the initial stages of gathering raw materials to the final delivery to the customers. The maritime shipping trade is considered the most efficient and cost-effective mode in comparison to other modes such as air and railway transportation as it can be used to transport most commodities, raw materials and finished goods ensuring the smooth flow of such products globally.
However, with the increasing benefits of maritime transportation, the risks are also increasing; one of the most prevailing risks in our world today that is certainly threatening the smooth flow of commodities through the sea is climate change. The environmental conditions are critical in deciding the safety of ports, and the capacity of chokepoints as well as determining the voyage time of the ship routes regarding the speed, fuel and insurance costs. Conversely, many global southern countries are heavily dependent on maritime shipping routes since a significant amount of outsourced production process is done in emerging market economies.
Despite that, it is crucial to ask what the potential implications of climate change on maritime routes are and how the countries of the global south are impacted.
The Vital Role of Maritime Trade
The importance of maritime trade to the global supply chain comes first from being the most cost-effective mode of transportation for transporting in bulk. Secondly, it gives huge economies of scale by allowing production and distribution on a large scale (Trace et al., 2009). Moreover, it encourages supply chain integration through connecting and facilitating trade between diverse countries allowing for supporting complex processes of production that require the involvement of several countries.
In addition to global benefits, maritime transport offers significant advantages at the national level. Well-connected countries, especially countries that leverage geographical advantages are lucky enough to have higher exposure to critical sea routes such as the Latin American countries or the Mediterranean which allow them to reap significant economic benefits, such as a reduction in transportation costs and lower travelling time which in return increasing trade volume and improve competitiveness for well-connected countries (IMO, 2012). Besides, well-connected countries more commonly act as transshipment hubs generating huge income and economic activity as well as attracting FDI. Yet climate change poses a significant burden on maritime shipping by increasing the risk of trade route disruptions due to more frequent and severe weather events.
Climate Change Impacts on Maritime Trade
Climate change impacts are posing significant challenges to maritime trade. It results in extreme weather events such as intense and more frequent storms and hurricanes that affect the shipping schedules as well as disrupt the ports, chokepoints operations and infrastructure.
Additionally, changing weather patterns pose higher risks to shipping routes increasing travel time and fuel consumption leading to higher insurance costs and shipping costs as well (Zittis et al., 2023). Another significant environmental variable that poses a serious burden to the maritime trade is changes in sea levels and rain patterns. The rising of sea levels has significant negative impacts on the time shipping route since, it increases the ports and coastal area’s vulnerability to floods and storm surges, potentially damaging infrastructure. Furthermore, both a level rise creates new navigational hazards, that consequently require vessels to adjust their routes. Impacts collectively increase travel time, costs and uncertainty of maritime transportation as well as obstruct the global shipping industry and disrupt the global supply chains and economies, particularly those of developing nations.
Case studies: Panama Canal and Suez Canal
As mentioned above unfavorable weather conditions that happen due to climate change pose high risks to maritime transportation creating price fluctuations for every commodity transported. Additionally, the environmental consequences, risks and damage have resulted in the distortion of trade volume passing by maritime routes. The climate global events that prevailed from the beginning of the 2020s were global warming and low precipitation, creating an inverse impact on the industry. These factors have led to the Panama and Suez canals becoming shallower, shipowners were forced to choose less cost-effective routes such as the Cape of Good Hope and Strait of Magellan. (Ormevik et al., 2023).
The Suez Canal, which is a significant maritime choke point, connecting the Red Sea with the Mediterranean Sea experienced disruptions due to extreme weather conditions in 2021 when the Ever-Given ship grounded at the canal. The canal accounts today for almost 12% of the world trade so because of such an event the losses to the global economy were around
$400 million per hour and all caused due to strong winds and storms (Fan et al., 2022). Incidents like this are common in canals as it happened twice afterwards with the Affinity V incident in 2022 and the Glory incidents in 2023; highlighting the tendency of the canal to become shallower Because of changes in water levels in both the Mediterranean and Red Seas as well as the changes in wind patterns. Even though the canal was expanded in 2014-2015 by The New Suez Canal mega-project, aiming to provide a bidirectional traffic way. Yet there is a need to further
invest in upgrading and developing the canal’s infrastructure technologies used, as well as improving risk management strategies and weather forecasting systems to maintain the smooth and sustainable operation of the canal.
Similarly, the Panama Canal is also suffering from environmental challenges and poses higher risks to the global economies and global supply chain operations. The Panama Canal is a key maritime chokepoint that allows passing annually over 14,000 ships carrying 275 million tons of cargo to connect the Pacific Ocean with the Atlantic Ocean through a manmade lock-type canal. Currently, the canal is experiencing an extraordinarily dry spell that started in 2023 with almost 50% as per the Smithsonian Tropical Research Institute (STRI). This dry spell happened because of the unexpected changes in rainfall that fall below normal leading to a reduction of water levels in the canal lake. Therefore, the canal authority limited the number of ships to pass and transit. That caused the shipping costs and time to as well as raising uncertainty on the reliability of the Canal to be heavily reliant on raising concerns and calls to action to find alternative routes to be able to mitigate the severe economic consequences that were possessed on the global economies, especially the global south.
The Impact on The Global South
These maritime trade disruptions have made the global south disproportionately vulnerable. Many countries in the global south rely heavily on sea exporting commodities, accordingly, any maritime disruptions lead to significant losses to the country and can create economic instability as well (UNCTAD,2020). For instance, Nigeria as a major oil producer face an extreme risk since the oil exporting accounts for a significant portion of its GDP (IMF, 2023), as Venezuela which is also an oil exporter is experiencing political and economic instabilities due to the ongoing challenges. Besides oil exporting countries there are also agricultural commodities depending on countries such as Brazil, Ghana and Zambia these countries are extremely vulnerable to severe economic fluctuations (FAO,2022).
For instance, the global south countries mostly lack the financial technological or even the institutional capacities to adapt to such disruptions which in return exacerbates the challenges possessed by climate change and maritime instabilities leading to a much greater burden to the global south other than the north.
Mitigating Risks and Building Resilience
By exploring the solutions available to mitigate the disruptions of both the Suez and Panama canals we found that there are other existing routes which are less cost and time-efficient that could be utilized such as the Cape of Good Hope in Africa which can be used as an alternative for the Suez Canal. However, this route requires more time, fuel and insurance, which in return increases the costs yet it is considered a viable option when the canal is closed.
On the other hand, there are some suggested solutions that are being proposed to mitigate the Panama Canal crisis such as constructing a canal through Nicaragua or rebuilding and using the Mexican interoceanic railway line these two routes offer shorter and more efficient ships travelling between the Atlantic and the Pacific Oceans. All in all, utilizing other transport modes such as air or railway could be a more costly yet convenient temporary solution for some commodities during canal disruptions.
However, there is a need for fast action from the global south to lessen the severe impacts of such challenges. Countries can diversify their trade routes from the very beginning by expanding their network of transport options to lower dependence on a single trade route. Moreover, establishing strong agreements and global partnerships become very critical as it can provide assistance and support at the time of crisis as well as it can equip countries with knowledge and technologies that can help elevate and limit the economic impacts. Besides this international cooperation can lead to developing solutions and global strategies, addressing the ongoing trade and transportation challenges.
Conclusion
In conclusion, climate change creates significant threats to maritime shipping and trade, with disproportionate impacts on the Global South. The changes in weather events like storms and rainfall disruptions lead to huge damage and inefficient operation of critical sea chokepoints such as the Suez Canal and the Panama Canal. Consequently, the global supply chains are negatively impacted leading to higher inequality in the vulnerable countries of the global south due to price fluctuations and economic instability.
To mitigate these risks, it is crucial to implement and work on multifaceted approaches. Starting by diversifying trade routes as well as exploring alternative transportation modes. Also, international corporations are needed to mitigate and overcome such challenges by finding effective solutions.
When addressing these challenges, it can be ensured that the climate impact on maritime shipping can be effectively addressed and productively continue, limiting its negative impact on the Global South. However, there is still room for further research and policy development to assist and support effective decision-making to ensure a sustainable future of the maritime trade and limitation of climate change impacts.
References:
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IMO. (2012). International Shipping Facts and Figures – Information Resources on Trade, Safety, Security, Environment. International Maritime Organization.
International Monetary Fund. (2023). Nigeria: Selected issues. IMF. https://doi.org/10.5089/9798400232053.002
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The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.
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