UN: Red Sea unrest will affect food security, economic growth in developing countries

The United Nations confirmed that the repercussions of the Red Sea unrest, which is witnessing attacks by the Iranian-backed Houthis on cargo ships, will affect food security and economic growth in developing countries.

Disruptions to key routes through the Red Sea, the Suez Canal and the Panama Canal have dramatically increased freight rate volatility, the UN Conference on Trade and Development ( UNCTAD ) said in a recent report. Factors such as longer shipping distances, higher fuel consumption and higher insurance premiums have created a “perfect storm” of cost pressures.

She added that global shipping costs rose in the first half of 2024, driven by unprecedented disruptions to major sea routes and higher operating costs, noting that the organization's calculations indicate that the Red Sea crisis and the Suez Canal disruptions contributed about 148 percentage points to the cumulative 120% increase in China's container shipping index from October 2023 to June 2024.

 Impact on trade and economies

The international organization stated that with increasing pressure on supply chains and economies, vulnerable small island developing states and least developed countries will face the worst impacts.

“As shipping rates rise, concerns grow about the sustainability of trade, economic growth, and global efforts to achieve sustainable development goals,” she added.

“The sharp rise in freight rates has profound implications for global trade and economic stability,” UNCTAD said.

She explained that the estimates of the United Nations Trade and Development Report on Maritime Transport until 2024 indicate that global consumer prices may rise by 0.6% by 2025 as shipping costs leak through supply chains.

The organization expects that vulnerable economies such as small island developing states will face an even sharper rise, with consumer prices rising by up to 0.9%, threatening food security and economic growth. Processed food prices, in particular, are expected to rise by 1.3%, exacerbating the challenges facing these countries.

“For small island developing states and least developed countries, which rely heavily on shipping to transport essential goods, rising costs erode trade competitiveness. Small island developing states have already seen their maritime connectivity decline by an average of 9% over the past decade, leaving them disproportionately affected by freight rate volatility,” she continued.

UNCTAD warned that if urgent action is not taken to reduce shipping market volatility and address the root causes of the disruptions, the economic and social impacts on vulnerable economies could be long-lasting.

Recommendations

The United Nations Conference on Trade and Development called for urgent and coordinated action to reduce volatility in shipping markets, mitigate impacts and support vulnerable economies, including “monitoring shipping market trends to detect rising costs early and provide timely support to vulnerable economies, and enhancing international cooperation to reduce disruptions at choke points and rerouting pressures, helping to stabilize shipping routes and reduce costs.”

The organization proposed “investing in developing ports and infrastructure to ease congestion and improve supply chain efficiency, especially in major shipping hubs, diversifying shipping routes and promoting regional trade initiatives to reduce reliance on long-haul routes, thus easing pressure on global shipping lanes.”

It also called for supporting low-carbon shipping and port solutions to mitigate environmental impacts, improve efficiency and drive the sustainable transformation of the shipping industry.

Since last November, the Iran-backed Houthi militia has been launching drone and missile attacks on cargo ships sailing in the Red Sea, Bab al-Mandab and the Gulf of Aden off the coast of Yemen, claiming that this is in support of Gaza, which has been subjected to a devastating Israeli war since October 7. These attacks have negatively affected shipping, trade and global supply chains, as many companies have resorted to longer routes for safety.