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High freight rates are putting pressure on global supply chains, threatening vulnerable economies the most, according to the UN Trade and Development
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Global shipping costs have surged in early 2024, largely due to disruptions in major maritime routes Red Sea, Suez Canal and Panama Canal
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The disruptions are straining global supply chains and raising costs for industries and consumers worldwide
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Elevated shipping costs could lead to a 0.6% increase in global consumer prices by 2025
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Small island developing states and least developed countries are among those most affected
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Freight rates have more than doubled from pre-pandemic levels, impacting consumer prices and trade flows
High freight rates are putting pressure on global supply chains, threatening vulnerable economies the most, the UN Trade and Development (UNCTAD) said in a statement.
Global freight rates climbed sharply in 2024, largely due to disruptions in major maritime routes Red Sea, Suez Canal and Panama Canal. The upheavals have led to rerouted vessels, increased fuel consumption, port congestion, higher insurance premiums and higher overall operating costs for industries and consumers worldwide.
Supply chain pressures are mounting globally, with the most severe impacts being felt by vulnerable small island developing states (SIDS) and least developed countries (LDCs), UNCTAD said.
Rising freight rates are heightening concerns about trade sustainability, economic growth, and progress toward global sustainable development goals, it added.
Based on data through mid-October, the Shanghai Containerized Freight Index (SCFI) remains well above pre-pandemic levels despite recent reductions.
The SCFI was down 45% from its 2024 high and 60% below its record level during COVID-19. However, it remained 115% above the pre-pandemic average and more than double the 2023 average.
Spot freight rates outside of primary trans-Pacific and Europe-bound routes also saw significant increases. Between January and July 2024, the average rate on the SCFI Shanghai–South America route more than doubled, reaching $9,026 per twenty-foot equivalent unit (TEU), the highest level since September 2022.
During the same period, the SCFI Shanghai–South Africa route’s average rate nearly tripled to $5,426 per TEU, marking its highest level since July 2022. Meanwhile, the SCFI Shanghai–West Africa route saw a 137% increase, reaching $5,563 per TEU, its highest since August 2022.
UNCTAD estimates indicate that climate-related low water levels in the Panama Canal contributed 49 percentage points to the 45% increase in the Baltic Dry Index between October 2023 and January 2024. Disruptions in the Red Sea and Suez Canal contributed 148 percentage points to the 120% rise in the China Containerized Freight Index from October 2023 to June 2024, based on UNCTAD’s data.
Based on the latest Review of Maritime Transport 2024 by UNCTAD, elevated shipping costs could lead to a 0.6% increase in global consumer prices by 2025. Economies dependent on imports, especially SIDS, face even greater risk, with potential price increases reaching 0.9%. Processed food costs alone may rise by 1.3%, creating particular challenges for food security in these regions.
READ: Maritime trade to grow 2% in 2024, less than 2023’s 2.4%
The review also highlighted how rising costs and declining connectivity – down by 9% over the past decade for SIDS (and LDCs) – are eroding trade competitiveness and impacting economic growth in vulnerable economies relying mostly on shipping for essential goods.
UNCTAD is urging immediate action to mitigate freight market volatility and support vulnerable economies through:
- Monitoring freight market trends for early detection of cost spikes and coordinated efforts to minimize chokepoint disruptions.
- Strengthening international cooperation to reduce chokepoint disruptions: route diversification to stabilize shipping routes and regional trade promotion.
- Investing in port and infrastructure to upgrade critical infrastructure, relieve congestion, and improve supply chain efficiency especially transshipment hubs.
The surge in freight rates reflects underlying structural weaknesses in global supply chains, including vulnerabilities to geopolitical conflicts and climate change.
“Without urgent action to reduce freight market volatility and address the root causes of disruptions, the economic and social impacts on vulnerable economies could be long-lasting,” UNCTAD said.
“By investing in resilient infrastructure, diversifying trade routes and supporting sustainable shipping and port solutions, the maritime sector can pave the way for more efficient, equitable and resilient trade,” it added.
