Looking through the glass darkly, German insurance giant is gloomy, but the worst is not the surest
 German insurance giant Allianz's summary of the current state of world maritime affairs is that shipping is increasingly subject to growing volatility and uncertainties from war and geopolitical events, climate change risks, such as drought in Panama and the resurgence of piracy off Somalia.
In one sense all seems connected to difficulties in the Suez and Panama canal - one serious the other not so much. The problem with Panama, that of low water levels, is really simply a reduction in throughput - something that will fix itself over time, perhaps even within the current rainy season.
There is also a difference in scale between the two to be considered - 14,000 transits through Panama a year versus 18,000 through Suez.
Like those transpacific shippers whose cargo wants to go east of the Mississippi, or more exactly east of a line drawn from Chicago to Dallas, most Asia-Europe cargo wants to reach what is known in the market at the "blue banana". This is the European Megalopolis, a highly urbanised and industrialised area in Europe, running from the English midlands to northern Italy, and taking in all major population centres in between.
Said the Allianz study: "Attacks against shipping in the Red Sea and Middle East waters, closely following on from the ongoing disruption caused by drought in the Panama Canal, have amounted to a double strike for shipping, causing yet more issues for global supply chains, as well as adding to the distance vessels must sail.
At the start of 2024, transits via the Suez and Panama canals were down more than 42 per cent and 49 per centres respectively, compared to their peaks. Whichever route vessels take, they face lengthy diversions and increased costs. For example, avoiding the Suez Canal adds at least 3,000 nautical miles and 10 days sailing the route around southern Africa.
In one sense, the result of the two crises share a commonality in that both reduce throughput of the world's two most important shipping channels, albeit to a far greater degree in the Suez case than with Panama. Yet the continuation of the deplorable situations dash the hopes port planners in the Mediterranean and on the US east and Gulf coasts where plans for growth and the prospects for investment have been scuppered.
For more than a decade Asian cargo has been draining from the west coast of the United States and taken the all-water route via Panama to enrich seaports from Houston to Boston with more ports being included in that list as capacity of the canal expanded from 4,500-TEU to 13,000-TEU ships.
On the face of it, the effect is less than catastrophic - if you are looking a Southern California port throughput at LA and Long Beach. They have not been hurting in recent years, because the gains they have made have been at the expense of Seattle-Tacoma, Portland, Oregon and Oakland, in northern California. The Panama low water level has restored their fortunes as ships have returned no longer able to transit Panama.
Railways - Burlington Northern Santa Fe, Union Pacific and Canadian Pacific Kansas City Southern - have much improved their tunnels and trestles to accommodate double stacking, but this in no way obliterates the competing efficiencies offered by the all-water route via Panama to access far more cheaply the consumer-rich lands east of the Mississippi with its easy road and rail links to clusters of born-to-shop consumers every few miles.
But with Asian cargo being restored to California ports, and containers heading east must again trek across the sparsely populated Badlands of the Old West, and east coast and Gulf ports are left to languish until the rains come to float more and bigger boats than they do today.
Again, dreams similar to those on the Pacific have been dashed in the Red Sea with Houthi missile strikes, that have become less frequent over time. One must keep in mind that rocketry is expensive and Iran has does not have much to spare, probably less as time goes on and Israel demonstrates an ability to strike Iran where it hurts. Still, it doesn't take much to have an insurance company elevate war risk and make it prohibitively expensive to insure a Suez transit.
Two positive things hithertofore have occurred
in the Mediterranean in the last 20 years. A layman looking at the map of the Med was always astonished at the counter-intuitive trade routes he beheld. Rather than poking their heads into the Med at the northern end of the Suez Canal, and finding nearby port to discharge cargo and head back to Asia with whatever European exports he could take back, most ships did nothing of the sort.
Instead, the typical containership, having emerged from the Suez Canal, would sail westward, past Gibraltar, head north along the Portuguese coast, turn northeast, cross the Bay of Biscay, perhaps first put into Le Havre, the westernmost of the Northern Range ports, which included Antwerp, Rotterdam and Hamburg as well as Southampton and Felixstowe in Britain.
Two outcomes are to be considered when thinking about the Red Sea crisis. The first is that the growing wayporting trade has virtually slowed to a stop. Wayporting involves Asian cargo reaching markets east of the Mississippi markets via Suez. This would affect cargo originating around Singapore from Indonesia, Malaysia, Bangladesh, Sri Lanka and India. These containers would be picked up in EU-bound ships but dropped off in highly mechanised Med ports, and transferred to smaller ships that would cross the Atlantic and put into ports on the east coast of North and South America.
More important, as the wayport trade has faltered with the Red Sea crisis, has been the transport development in the EU itself. The reason for the counterintuitive circumnavigation of the Iberian Peninsula was that the sophisticated transport infrastructure available in northern Europe. But 40 years of European development has changed much since, expanding road and rail access as never before as well as upgrading ship and port technology. Of course, the Red Sea crisis and the spill over from the Russo-Ukrainian War has complicated and impeded developments.
Keep in mind that while the Middle East and eastern European conflicts, even if overshadowed by conflicts with China, this is an inconvenience for world shipping, not a disaster. We have survived the closure of the Suez and the Cape route for the better part of a decade after the 1967 Six Day War. And some say geopolitical risks mean higher rates.
There is more to fear from compliance costs from regulators to maximize every fear to reap the greatest tax dollar harvest. After all the 500-TEU ships of the 1970s with their 40-man crews have long been replaced by 10,000 - 20,000-TEU ships with 20-man crews. And who knows? With African ports and transport upgrading infrastructure over the years, an unintended consequence of our current difficulties might well be a portal of discovery to bring untold benefits to all. |
