UNCTAD: Key measures to address supply chain disruptions

Addressing supply chain disruptions

According to the report, the landscape of international maritime trade has undergone significant transformations, particularly in light of recent global disruptions and evolving geopolitical dynamics. Global maritime trade recovered and demonstrated resilience in 2023 amid increased supply chain vulnerability caused by disruptions in two leading international maritime chokepoints. Shifts in trade patterns remain pronounced, driven by geopolitical tensions and climate-related disruptions.

The war in Ukraine, disruptions in the Red Sea, and environmental challenges in the Panama Canal underscore the need for resilience-building strategies for maritime chokepoints and global supply chains. These trends and challenges are shaping the outlook for international maritime trade, with variations across cargo segments influenced by factors such as energy security concerns, supply chain resilience, consumer spending, inflation, and economic growth prospects.

Furthermore, the pandemic served to show the risks of relying heavily on extended supply chains and distant manufacturing, particularly from Asia, to fulfill consumer demands in North America and Europe. This overreliance not only led to major challenges when international trade routes were disrupted but also revealed the limitations of trade logistics in managing sudden surges in demand. Given this context, the need to build more resilient and reliable supply chains has prompted a rethink of efficiency-driven models that prioritize cost-cutting over systemic stability and reliability.

Supply-side measures aimed at building more resilient supply chains require greater investments in infrastructure and labor, for example by:

• Expanding and combining modes of transport; using air, rail, and land freight to reduce dependence on chokepoints, bypass disruptions, and ensure a steady supply of cargo.
• Enhancing infrastructure facilities, including port capacity, storage facilities, pipelines, and bunkering facilities, to reduce congestion, increase buffers, and minimize fuel shortages or delays caused by disruptions.
• Using technology to optimize the capacity of chokepoints.
• Recognizing the value of supply chain workers (railway workers, dockworkers, truckers, seafarers) who are essential for overcoming workforce shortages during critical times; such shortages can exacerbate supply chain disruptions.

In addition to supply-side measures, building resilient supply chains for maritime trade includes:

• Reducing the risk of relying on a single input source by diversifying sourcing and manufacturing locations or diversifying fuel types and sources. While reshoring may offer potential benefits such as increased resilience, reduced environmental impact, and local economic gains, it presents challenges in terms of costs and increased supply chain complexity due to potential disruptive changes associated with new processes, technology, and workforce training.
• Increasing inventory levels to enhance the capacity to absorb supply chain shocks.

The disruption to chokepoints seen in the past two years suggests the need for action in three areas to enhance the resilience of supply chains and ensure unhindered global maritime trade flows:

• Diversifying shipping routes to avoid overreliance on major hub ports and developing contingency plans that include alternative routes and ports.
• Enhancing cooperation among shippers, logistics providers, and ports to optimize supply chain efficiency, reduce transit times, and decrease transport costs.
• Improving international collaboration, strengthening trade pacts and alliances (to ensure smoother and more predictable maritime trade flows), and engaging in collaborative efforts to manage risks and disruptions in supply chains.
• Using technology, data, demand forecasting, and early warning systems to enhance preparedness and optimize capacity at chokepoints.

Outlook and policy considerations

UNCTAD forecasts that in 2024, global maritime trade is expected to expand by 2 percent, while containerized trade is anticipated to grow by 3.5 percent. This growth will be fueled by robust demand for major bulks such as iron ore, coal, grain, and oil, as well as containerized goods. Despite these positive indicators, underlying challenges such as geopolitical tensions, extreme weather events, and economic uncertainties continue to pose significant risks.

Looking beyond 2024, UNCTAD projects global maritime trade to grow at an average annual rate of 2.4 percent between 2025 and 2029, with containerized trade expected to increase by 2.7 percent during the same period. This growth will be supported by technological advancements, the transition to cleaner energy, and infrastructure developments.

However, downside risks persist, including potential disruptions from geopolitical tensions, economic uncertainties, trade-related tensions, and environmental challenges. The global economy faces numerous challenges that could impact medium-term growth prospects. Persistent inflation, particularly in the services sector, makes it more difficult to normalize monetary policies, with central banks cautious about easing too quickly. Inflationary pressures are expected to remain high in several regions.

Furthermore, geopolitical tensions involving trade-related and regional issues add complexity to the economic landscape. The potential for significant swings in economic policy driven by elections and fiscal constraints increases the uncertainty around global growth projections. High public debt levels in many economies, combined with elevated borrowing costs, constrain fiscal space and limit the ability of governments to respond to economic shocks.

Conversely, upside opportunities include the expansion of green energy and artificial intelligence-related product sectors, as well as potential interest rate cuts in major economies that could boost trade. Maintaining a balance between immediate priorities and long-term sustainability and resilience goals will be essential for the continued growth and stability of international maritime trade.

Policy implications and recommendations

As the world deals with these challenges, safeguarding maritime lifelines becomes critical. Doing so requires international cooperation, strategic foresight, and resilience planning to ensure that the arteries of global trade remain open, secure, and efficient. A multifaceted policy approach is essential to address these challenges and harness opportunities. Policymakers should focus on the following:

• Enhancing supply chain resilience by investing in infrastructure and technology, diversifying supply sources, and reducing reliance on chokepoints. This involves evaluating country and port reliance on chokepoints and trade, and consistently monitoring alternative routes to ensure preparedness for disruptions.

• Strengthening international cooperation and trade pacts to help mitigate geopolitical risks and ensure smoother trade flows.

• Supporting free trade through a rules-based system and encouraging regional and South–South trade to provide a buffer against global disruptions.

• Implementing sustainable practices and investing in green technologies to support environmental goals and create new trade opportunities.

• Continuously monitoring market trends and trade patterns to adapt strategies and identify opportunities for alternative supply from other regions and emerging sectors, disruptions in routes, and impacts on distances and trading costs, ensuring long-term growth and stability in global maritime trade.