•Mounting uncertainty and shunning the Suez Canal to reroute around the Cape of Good Hope is having both an economic and environmental cost.
•Re-routing of vessels by global shipping lines translates into longer cargo travel distances, rising trade costs and insurance premiums.
Kenya and Tanzania are the most affected economies in the East Africa region as vessel movement through the Suez Canal fall, a report indicates, amid continued disruption in international trade.
This, even as Kenya’s Central Bank (CBK) moves to warn that the cost of living could further rise in the next three months, piling more pressure on already struggling households.
Foreign trade for several East African countries is highly dependent on the Suez Canal.
According to the UN Conference on Trade and Development (UNCTAD), approximately 15 per cent of Kenya’s foreign trade (by volume) is channeled through the Suez Canal, while that for Tanzania is about 10 per cent.
With the two countries also having the only seaports in the region, it means landlocked countries in the East Africa Community are affected.
Also affected is Sudan which depends the most on the Suez Canal, with about 34 per cent of its trade volume crossing the Canal, and Djibouti whose 31 per cent of foreign trade is channeled through the Suez Canal.
“Foreign trade for several East African countries is highly dependent on the Suez Canal,” UNCTAD notes in its latest update on the disruptions in the Canal, Red Sea and the Panama Canal.
The attacks on vessels by Iran-backed Houthi rebels in Yemen, which started in December, have seen shipping lines avoid the key maritime route including the Suez Canal, with shipping opting to detour to the Cape of Good Hope in South Africa.
This has diverted more than $200 billion (Sh29.1 trillion) of cargo away from the Red Sea and Suez Canal, a key trade route connecting the Port of Mombasa and Dar es Salaam to the world.
“Attacks on shipping affecting the Suez Canal add to geopolitical tensions impacting shipping routes in the Black Sea, and severe drought due climate change disrupting shipping in the Panama Canal,” UNCTAD said.
With developing countries vulnerable to the disruptions, the organization emphasizes the urgent need for swift adaptations from the shipping industry and robust international cooperation to manage the rapid reshaping of global trade.
“The current challenges underscore the exposure of global trade to geopolitical tensions and climate-related challenges, demanding collective efforts for sustainable solutions especially in support of countries more vulnerable to these shocks,” it said.
UNCTAD estimates that transits passing the Suez Canal has decreased by 42 per cent compared to its peak.
With major players in the shipping industry temporarily suspending Suez transits, weekly container ship transits have fallen by 67 per cent, and container carrying capacity, tanker transits, and gas carriers have experienced significant declines.
Meanwhile, total transits through the Panama Canal plummeted by 49 per cent compared to its peak.
Mounting uncertainty and shunning the Suez Canal to reroute around the Cape of Good Hope is having both an economic and environmental cost, also representing additional pressure on developing economies.
Re-routing of vessels by global shipping lines translates into longer cargo travel distances, rising trade costs and insurance premiums.
Furthermore, greenhouse gas emissions are also growing from having to travel greater distances and at greater speed to compensate for the detours, UNCTAD noted.
Kenya being a net importer, households are staring at further increases in commodity prices as manufacturers and traders pass extra costs to consumers, amid a reduced spending power in post-Covid era.
This means inflation, the measure of the cost of living, is likely to go up from the 6.9 per cent recorded in January by the Kenya National Bureau of Statistics (KNBS).
According to CBK, the survey of the agriculture sector conducted ahead of the recent MPC (Monetary Policy Committee) meeting revealed a possible increase in inflation, mainly as a result of costly imports.
“Respondents expected inflation to increase in the next three months on account of high import costs, partly due to the depreciation of the exchange rate,” CBK governor Kamau Thugge said.
While the shilling has strengthened in recent weeks, mainly boosted by the move on the Eurobond and forex inflows, it remains high at above Sh140 to the dollar.
Kenya’s overall inflation increased to 6.9 per cent in January 2024 from 6.6 per cent in December 2023, and remained sticky in the upper bound of the government’s target range of five per cent.
UNCTAD underscores the potential far-reaching economic implications of prolonged disruptions in container shipping, threatening global supply chains and potentially delaying deliveries, causing higher costs and inflation.
“The full impact of higher freight rates will be felt by consumers within a year,” it said.