Agro Perspectiva

Grains Trade Disrupted by Challenges in Key Shipping Routes

12.01.2024 22:43 "Agro Perspectiva" (Kyiv) — According to the report of the USDA Grain: World Markets and Trade (January 2024), Global grains trade relies heavily on efficient transportation routes. For over 100 years, the Panama and Suez Canals have shortened shipping distances and facilitated commodity trade. The Panama Canal allows vessels from the Western Hemisphere to avoid the historically dangerous Cape Horn on the southern tip of South America. Similarly, ships can bypass the Cape of Good Hope by using the Suez Canal. Though both canals have reduced volumes in recent months, global grain trade volumes remain robust, albeit with higher costs and travel time.

Insufficient rainfall in Panama has resulted in historically low water levels in the Panama Canal over the last few months. Since July 2023, the Panama Canal Authority has reduced the daily number of vessels that can transit the canal, resulting in longer wait times and higher transit costs. Ships carrying corn, soybeans, and wheat from the U. S. Gulf and northern Brazil that would have traveled through the Panama Canal, mostly to Asia, must either compete with other goods for costly transit rights or extend their journeys by crossing the Atlantic Ocean.

In response to rising costs and wait times at the Panama Canal, many ships rerouted to use the Suez Canal instead. However, Houthi attacks on vessels in the Red Sea have introduced another challenge for global seaborne trade. Missile and drone attacks have led major shipping companies to halt or reevaluate use of the corridor. When the Suez Canal was physically obstructed by a ship run aground in 2021, some vessels diverted around the southern tip of Africa or waited until the canal was unblocked.

Ships are now using the same detour, but with more uncertainty about how long such a detour will be necessary. EU and Black Sea wheat destined for East Africa, the Middle East, and Asia could face journeys of thousands of extra miles. Conversely, rice from Asia destined for Europe or parts of the Middle East may also need to be rerouted. The Baltic Dry Index, a measure of global shipping costs for a variety of commodities including grains, spiked in early December, soon after the beginning of Houthi attacks. While the index has eased in the past month, it remains elevated relative to the prior year.

For a closer look at the situation in the United States, please see the article «U. S. Corn Inspections Indicate Shifts to Destinations, Mode of Transport Amid Logistics Disruptions» in the coarse grains section below.

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