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Juan Carlos Figueroa

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Monica Espinoza

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Christian Giron Moran

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Monica Espinoza

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Christian Giron Moran

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MARITIME CROSSROADS: CRISIS IN THE SUEZ AND PANAMA CANALS



In recent years, global maritime trade has faced various problems that have significantly impacted its efficiency and operations. The COVID-19 pandemic was the most significant challenge, with negative consequences for foreign trade, such as border closures and lockdowns, leading to production disruptions, port labor shortages, and limitations on port operations; This, in turn, triggered an exponential increase in the cost of international transportation. Furthermore, in the economic and geopolitical sphere, volatility was observed in global markets and an increase in the price of raw materials, as a result of trade tensions between countries such as China and the United States, as well as the conflict between Ukraine and Russia.

Currently, faced with a post-pandemic scenario and a normalization in the price of maritime freight, a recovery in world trade by sea would be expected. However, new factors such as the drought affecting the Panama Canal and the Red Sea crisis are putting the security of the global supply chain at risk.

THE RED SEA CRISIS

According to reports from the international media CNN, since last December 9, there have been almost daily attacks with drones and missiles against commercial ships transiting the Red Sea bound for Israel. These attacks would be carried out by the Houthis, an extremist group that seeks to take control of Yemen and supports Hamas in its current conflict with the Israeli state.

With the aim of weakening supplies to Israel, the Houthis would have moved near the Mandeb Strait to attack ships heading to the Hebrew country. This geographically strategic point, with a width of 32 kilometers, of which only 10 are navigable in some sections, is the entrance to the Red Sea that connects with the Suez Canal, in Egypt. Through this channel, 12% of global trade flows, including 30% of global container traffic.

As a consequence of these attacks, since last December 16, the main shipping lines, such as Maersk, Hapag-Lloyd, ONE and MSC, have announced the suspension of the crossings of their container ships in the Red Sea. Instead, they have chosen to redirect their routes to the Cape of Good Hope, located in South Africa, resulting in an increase in transportation time of between 10 and 20 days. Likewise, the price of maritime freight has experienced upward pressure, especially on routes from Asia to northern Europe, exceeding US$ 4,000, which represents an increase of more than 170% since the beginning of the diversions in the second half of December 2023, according to Freightos, a consulting firm specialized in maritime transportation.

To date, shipping lines are waiting for an improvement in the outlook. However, there is no estimated time frame for this. Although the US and other powers, such as the United Kingdom and France, have already sent a naval force to monitor the situation, it is likely that most shipowners would prefer to confirm the success of the mission before risking their ships and crews.

PANAMA CANAL

Another strategic point for maritime trade is the Panama Canal, through which 6% of world maritime trade transits. In the months of May, June and July, the lack of rain forced the Panama Canal Authority (ACP) to reduce transit through this route to 32 ships per day and limit their draft to no more than 44 feet ( 13.4 meters).

Last October, in response to adverse weather conditions aggravated by the El Niño phenomenon (FEN), the ACP initially announced a gradual reduction in the number of ships that would cross this route. For January 2024, a reduction to 20 ships per day was established and, for February, a maximum transit of 18 ships per day. This led to a new increase of 23.3% in the freight price of the Shanghai-New York route compared to the end of March, with a value of US$ 3,074/FEU as of December 21.

However, in the second half of December, the ACP announced that, as of January 16, 2024, the number of daily transits would increase to 24 (currently 22). As indicated, this adjustment is based on the evaluation of recent climatic conditions. Despite the lack of rainfall in October, rainfall in November was more favorable. In addition, the water-saving measures and restrictions implemented contributed to stabilizing the situation.

Although there is a slight improvement in the situation of the Panama Canal, the impact of the crisis on the Red Sea and the Suez Canal would not be limited to trade between China and Europe. Peter Sand, chief analyst at consultancy Xeneta, said both the US east coast and the east coast of South America would be affected. For his part, Lars Jensen, an expert maritime transport analyst, highlighted that the deviations in the routes from China to Europe will generate a greater delay in the return of ships to Chinese ports. This would put additional pressure on the demand for space by exporters from that country to ship their products, given the proximity of the Chinese New Year and the decrease in the operational capacity of shipping lines.

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