Introduction
Global trade relies heavily on a few key maritime routes that handle a significant percentage of cargo volume. Recently, some of these routes, which pass through the called chokepoints, have been impacted by conflicts or events, leading to worldwide consequences. Among the most recent and important are the following:
- Bab el-Mandeb Strait (Red Sea Crisis): At the end of 2023, conflicts in the Red Sea escalated, significantly affecting global trade. Ships navigating through the strait have encountered frequent attacks and threats, directly impacting the number of vessels passing through the Suez Canal. This conflict has led to several outcomes:
– Cargo diversion through the Cape of Good Hope on Far East–Europe routes.
– Increase in container rates up to 2.5 times and also increase in insurance premiums.
New coalition formed to protect vessels and patrol the Red Sea. - Panama Canal droughts: Prolonged droughts in the canal region have caused a series of restrictions that directly affect maritime traffic and leading to cargo diversion through alternative routes. Some of the consequences include:
– Reduction in the daily transit of ships from 35-40 to as low as 18 at the worst moments.
– Vessels required to carry less cargo due to depth limitations.
– New charges per container by the shipping lines.
– Increased waiting times to pass through. - Strait of Hormuz potential closure: The seizure of the MSC Aries by Iranian Armed Forces in the Strait of Hormuz has raised alarms and could heighten regional tensions. This conflict, along with the Red Sea Crisis, could become devastating with regional consequences such as disruptions to supply chains, as many GCC countries rely heavily on imports of basic products (food, pharmaceuticals, etc.). Also, possibly leading to global implications, affecting the worldwide oil and gas supply since the countries in this region are major exporters and would be impacted.
LOGISTIC CHAIN CHALLENGES:
All these recent conflicts highlight that many of these routes are fragile and can be easily disrupted by conflicts and events. Based on the current context, the global logistics sector is facing a series of challenges that need to be addressed, such as maritime cargo diversion, stock shortages & price increases, environmental issues (droughts or longer trips), or paired effects like those of the Red Sea Crisis combined with the Strait of Hormuz situation. Therefore, countries need to implement both short-term and long-term action plans:
- Short-term action plan: It is necessary to closely monitor the impacts and respond accordingly by maximizing the use of existing assets and procedures:
– KPIs: Governments must have comprehensive dashboards to monitor key trade drivers, enabling them to act quickly and mitigate the effects
– Assets: There is a need for more alternative land corridors while optimizing and maximizing the use of existing logistics assets to meet new demand
– Procedures: Avoid any kind of bottleneck by further streamlining, where possible, existing procedures related to critical supply chains (deepening digitalization)
– Coordination: Efficient collaboration and coordination between the public and private sectors - Long-term resilience plan: To manage and prepare for these events, a fully operational and self-sustaining long-term resilience plan is required. This plan involves several key drivers such as strengthening corridors, increasing investment in supply chains and assets (developing or acquiring assets to guarantee trade). Additionally, it includes several key requirements:
– Country vision: Reinforce national performance in the global context
– Integral plan: Focus on corridors rather than individual assets (a shift in mindset)
– Fully operational: Implement high-performance operational solutions that are fit for purpose and easily expandable in capacity
– Self-sustainable: Ensure financial self-sustainability rather than relying on backups (avoiding unnecessary spending). Involve the private sector, as this cannot be achieved by the public sector alone
ALTERNATIVE CORRIDORS AND OPPORTUNITIES TODAY:
Currently, there are numerous corridors, most of which are in the process of being completed, that, once fully operational, could alleviate the dependency on maritime traffic and the disruptive events at chokepoints. These include: USWC-USEC, Bioceanic corridors, the Mexico Oceanic Corridor, and the Panama Canal in the Americas. In Euro Asia, there are the TEN-T, One-Belt One-Road, Middle Corridor, and Trans-Siberian routes. In Africa and the Middle East, the GCC railway, Dakar-Ndjamena-Djibouti corridor or also the One-Belt One-Road.
Focusing on the case of the Middle Corridor: The various conflicts involving CIS countries have led to the emergence of new logistical opportunities, as well as increased importance for existing ones, such as the Trans-Caspian (Middle Corridor). With certain actions, such as improving the railway network, enhancing port performance, increasing rolling stock across the corridor, and developing a network of inland depots and intermodal platforms, among others, the effectiveness of this corridor can be significantly boosted.
With this resilience plan, both the public and private sectors can seize new opportunities:
Public Sector: Enhancing competitiveness through improved logistics ecosystems, strengthening regional influence and cooperation with other countries, attracting local and foreign investment, all of which contribute to the economic and social transformation of nations.
Private Sector: Increasing revenues through the development of transport infrastructure, expanding service providers’ presence in corridors, exploring new investment opportunities, or internationalizing companies in line with the country’s expanding influence.
ALHAMBRA ADVISORS
Alhambra Advisors team has more than 20 years of expertise in global logistic supply chains, having worked with main logistic and port/ maritime operators. Alhambra Advisors provides services ranging from the strategy definition (market assessment and definition of the value proposition) to assessing the implementation of alternative solutions.