CLIMATE CHANGE ACCELERATES THE FOOD CRISIS:

“AND DRIVES INFLATION THROUGHOUT THE PLANET”

 

 

THE PERFECT LOGISTICS STORM

How the Suez and Panama canals have reached the brink of blockage at the same time

The initial complications caused by Climate Change in the Panama Canal immediately collapsed the Suez Canal, which was overwhelmed in its transit capacity, along with the impossibility of provision and supply services in general (such as fuel, repairs and essentials).

The two most important maritime transit channels in the world are not going through good times.

In the three years after the pandemic, international trade has experienced a logistics and raw materials crisis that has put the supply chain in check.

 

The proper functioning of sea transport was key to reviving the global economy, but now other concerns are added to a drama that seems to have no end.

 

 

 

CLIMATE CHANGE A LOGISTICS CATASTROPHE

 

The Panama Canal, a key pillar in the world economy through which almost world trade passes, is running out of water and is experiencing an unprecedented traffic jam with a very slow pace of traffic.

On the other hand, in the Suez Canal, through which 10% of world trade and 30% of containers transit, Houthi attacks on ships in the Red Sea continue to be recorded, which has led large shipping and oil companies to announce the cessation of its operations.

 

 

 

DANGER IN THE SUEZ CANAL

 

It all started in early November, when the Houthis, reportedly backed by Iran, attacked the Israeli-linked merchant ship Galaxy Leader.

The organization said any Israeli ship would suffer the same fate. But the truth is that all types of European and American ships that cross the Red Sea have also been attacked with missiles, drones or seizure attempts.

For the militias: they are still linked to Israel.

 

On December 12, for example, militias hit the Norwegian oil tanker Strinda with a missile, claiming it was headed to Israel when it was actually headed to Italy.

Two days later, an oil tanker owned by the Danish shipping company A.P. Moller Maersk was attacked in the Bab el-Mandeb Strait.

 

Since then, the attacks have accelerated and the world’s largest shipping companies have decided to change routes.

In other words: political instability in the Middle East is straining global supply chains.

In the middle of Christmas.

 

“Shipping companies that transit the Suez Canal experience continuous attacks by Houthi militias.”

 

 

 

COMPANIES SAY “GOODBYE”

 

Faced with this situation, shipping and oil companies have decided to divert their ships from the Red Sea.

On December 15, Maersk and Hapag-Lloyd announced this and two days later CMA CGM, the Swiss giant MSC and the Chinese Yang Ming also announced their exodus from France.

It must be taken into account that only the first three already represent around 40% of all maritime transport.

 

A drastic drop in the pace of shipments of raw materials and products is imminent:

“The difference here is that it is not maritime transport caught in the crossfire of a conflict, as in Ukraine, but rather it is the direct objective; which impacts the shortages of the entire planet and drives inflation due to scarcity.”

 

 

 

ALTERNATIVES ARE MORE COSTLY AND NOT A SOLUTION

 

The last to join the change of routes have been the oil company BP and the Norwegian shipping company Equinor.

Instead, they prefer the Cape of Good Hope (South Africa) option, even though that means more time and costs.

Many more: between 10 and 12 additional days, or more in the case of tankers or large ships.

 

As we said before, container trade between East and West depends on the Red Sea and the Suez Canal.

And with mainlines now preferring to skirt around southern Africa, there will also be significant delays.

That is to say, we are experiencing a blow to international trade and economies around the world, with an immediate impact on inflation, factory layoffs due to lack of raw materials and unrecorded unemployment.

 

 

 

THE PERFECT STORM

 

The effects can already be seen in the global economy: from December 8 to December 15, global maritime freight rates have risen nearly 10%, from just over 1,000 dollars per container and delivery to almost 1,100, according to the SCFI Comprehensive. Container Freight Rate Index.

And they will continue to do so for several reasons: they have to take a 31% longer route and more kilometers and more waiting also means more cost; rerouting and blockade will reduce the number of ships available; and fuel will become more expensive.

Brent has already registered an increase of 8% since last week.

 

 

 

THE CLIMATE DRAMA PANAMA CANAL DRAMA

 

The other most important trade route on the planet, which sees 12,000 ships cross each year to carry cargo to more than 160 countries, is also experiencing an unprecedented crisis: it is running out of water due to drought.

A line of ships is piling up waiting to be able to use the canal and the congestion in the place has reached such a point that there are already shippers paying millions of dollars to skip the line and cross the canal.

 

Five years ago the region recorded a 20% reduction in rainfall compared to the average, making it the fifth driest year since the 1950s.

Since then, authorities have cut the quota of ships crossing the canal (from 16 to 14 ships a day) in order to save water, while also restricting the draft and weight limits of ships.

 

 

SYNTHESIS:

This climate crisis has led to fewer ships in transit and at the same time carrying less cargo.

Another great concern for global trade at the height of consumption needs in the north.

 

 

 

CONCLUSION:

Due to Climate Change, the Suez and Panama canals have reached the brink of blockage at the same time, it is a remediable situation; but not in the short term.

The solution is to supply less exclusive and rigorous conditions so that emerging countries can trade their products, to remedy a situation that if they do not adopt these measures; They will cause global financial crises and intensify war conflicts.

 

Due to Climate Change, the Suez and Panama canals have reached the brink of blockage at the same time, it is a remediable situation; but not in the short term.

 

The solution is to offer less exclusive and rigorous conditions so that emerging countries can market their products, to remedy a situation that if they do not adopt these measures; They will cause global financial crises and intensify war conflicts.

How it became known on Financial Times that central banks such as ECB and the BOE are looking at the metrics of how they will affect the economy through the shortage that will cause an inevitable inflationary spiral that the organizations have already taken note of and are activating mechanisms to mitigate and eliminate the impacts that inflation can cause in a region that is just reactivating the inflationary process after the init

ial attack by Russia on Ukraine.

 

 

AUTHOR:

DIEGO BALVERDE

ECONOMIST

EUROPEAN CENTRAL BANK