War and Climate Change: Redrawing the World's Trade Routes
The global economy is facing a unique challenge as climate change and geopolitical tensions reshape the world's trade routes. With the maritime sector managing between 80 and 90 percent of the world's trade, any disruption can significantly impact global supply chains and lead to major delays for various industries. Recent years have seen some of the world's biggest trade routes face significant challenges, highlighting the need for alternative routes and shipping hubs.
Since November 2023, attacks on ships in the Red Sea have increased, while the war in Ukraine has disrupted the Black Sea. Simultaneously, climate-induced droughts have limited trade in the Panama Canal. These challenges on three major trade routes suggest the need for greater diversification to ensure the future of global trade.
In 2023, around 22 percent of global seaborne container trade passed through the Suez Canal. However, as companies feared attacks in the Red Sea, more firms opted for longer, alternative routes around Africa, avoiding the Suez Canal. This shift had significant economic implications, with the Suez Canal contributing approximately $9.4 billion to Egypt's GDP in the 2022/23 fiscal year, a 40 percent decrease the following year due to the Red Sea crisis.
Climate change is also impacting the Panama Canal, with frequent droughts in Central America leading to lower water levels and reduced traffic. The canal's reliance on ascending locks that draw water from a nearby lake means boats have had to reduce their cargo loads by 40 percent at times to pass through, causing delays and increased carbon emissions. As a result, several countries have turned to alternative land and rail routes for freight transport.
In response to these disruptions, some companies have sought quick fixes, such as land travel or using longer routes, which can increase carbon emissions. However, climate change is also creating new opportunities. As polar ice melts, increasing sea levels, new shipping routes are opening up, including the Northern Sea Route (NSR) and the Northwest Passage.
The NSR, passing along the Russian border, could become ice-free by 2030, reducing travel time between East Asia and Europe by up to two weeks. The Northwest Passage, along the Canadian border, could also reduce travel time from North America to the Bering Strait. However, access to these routes is limited due to varying ice melt conditions and the risks associated with traversing icy waters in remote regions without essential infrastructure.
China is exploring these new trade routes, sailing a cargo ship along the NSR to test the waters for a potential regular, albeit seasonal, service between Asia and Europe. While the environmental impact of increased maritime activity in these regions is still uncertain, these new routes offer potential benefits in terms of reduced carbon emissions and travel time.
In conclusion, the world's oldest and busiest shipping routes are facing greater challenges, from climate change to the spillover effects of conflict. Shipping companies are seeking alternative trade links, and recent disruptions have underscored the need for diversified trade routes. However, the sustainable implementation of these alternatives remains a complex issue that requires further exploration and planning.
