More than 80% of global trade is carried by sea and ocean, but two out of five vital waterways are facing challenges, affecting global trade and pushing operational costs up. The Red Sea and Panama Canal disruptions in recent years are estimated to have caused $1.25 trillion in economic loss. Let’s examine the situation and what the future looks like.
Part I: The Suez Canal
The 193-kilometre-long Suez Canal in Egypt is a key trade route between Europe and Asia, connecting the Mediterranean Sea to the Red Sea. Since its opening in 1869, the Suez Canal has become one of the world's busiest waterways, with more than 20,600 ships passing through annually (2021 data). In other words, approx. 12% of global trade and 30% of global container traffic traverse the Suez, carrying over $1 trillion worth of goods. Although there have been several disturbances (Suez Crisis in 1956-57; Arab–Israeli wars in 1967 and 1973, and mine clearing operations in 1974-75) in the past, the Suez Canal had pretty smooth sailing in recent decades. Unfortunately, the past five years have brought new challenges.
In March 2021, the canal was blocked in both directions by the 400-metre-long Evergreen G-class container ship "Ever Given". The blockage lasted for six days, during which more than 400 ships were queuing to pass through the canal at both ends, representing around 17 million tonnes of deadweight. Lloyd's List estimated that the stranded ship was holding up an estimated $9.6 billion worth of trade per day, which equated to $400 million an hour. "Ever Given" was stuck for 151 hours.
The Houthi attacks
In October 2023, the Iran-backed Houthi movement in Yemen launched missiles and armed drones at Israel, demanding an end to the invasion of the Gaza Strip. Shortly after, the Houthis began seizing and launching aerial attacks against dozens of merchant and naval vessels in the Red Sea. According to Reuters data (2025 January), Houthis have carried out over 100 attacks on ships, sunk two vessels, seized one and killed at least four seafarers.
The attacks have disrupted global trade and prompted route changes, which meant longer voyages for goods to arrive. According to the New York Times, 136 container ships per week travelled around the Cape of Good Hope weekly in 2024; a year ago, it was 40. As a result, six months ago, the number of ships transiting through the Suez Canal hit rock bottom. In October 2024, daily transists were 57% below their previous peak, 55% lower than one year ago and just 4% above the lowest recorded 4-week average. The rerouting of ships has increased transit times by 10-14 days and pushed up freight rates as much as threefold at specific periods during the past year, Al Jazeera reports. Egyptian President Abdel Fattah al-Sisi said last December the disruption cost Egypt around $7 billion in less revenue from the Suez Canal in 2024.
On 15 January 2025, Israel and Hamas signed an agreement to a ceasefire, which came into effect on the 19th. Since then, the situation in the Suez Canal has started getting better, and security in the Red Sea has gradually improved, too. In February, Egypt's Suez Canal Authority chairman Osama Rabei Rabie said that there were positive indicators for the return of stability in the region. As a result, 47 ships rerouted to the Suez Canal in the first three weeks of February.
Although the ceasefire still stands, the situation in the region remains extremely tense, with daily new developments in negotiations. The shipping situation in the Suez Canal is showing positive signs, but it is far from returning to pre-Houthi-attack stability.
Part II: The Panama Canal
Opened in 1914 and expanded in 2016, the Panama Canal is also one of the most important global trade waterways. 82-kilometre-long canal in Panama connects the Caribbean Sea with the Pacific Ocean, saving the shipping industry billions of dollars annually while providing a faster and safer way of delivering goods, eliminating the need to ship around South America. It is estimated that over 14,000 ships pass through the canal annually, which is around 5% of global maritime trade, including 40% of total U.S. container traffic.
Despite the project’s success, the Panama Canal faces extreme challenges today. The primary challenge is climate change, which causes prolonged droughts, limiting the number and size of ships permitted to pass through. Unlike the Suez Canal, a freshwater lake feeds the Panama Canal, and its water level has fallen critically low. A lack of rain and the so-called El Nino weather conditions have recently contributed to one of the driest years in the canal's history. Total rainfall in 2023 was 30% lower than average, while October recorded a shocking 41% less rainfall than usual. As a result, the Panama Canal Authority reported a 29% drop in vessel transits during fiscal year 2024. From October 2023 to September 2024, only 9,944 ships crossed the canal, compared to 14,080 during the previous year. It is not the first time the Panama Canal has struggled due to draught – previously, similar problems were recorded in 1997 and 2016. According to El Pais, scarce rainfall results in losses of around $1 billion each year. Additionally, shipping companies incur increased costs and waiting times, with more than 200 ships stuck in line to pass the canal in 2023.
Fortunately, things get better. The end of 2024 provided lots of rain, allowing business to improve. According to Seatrade Maritime News, transits in the Panama Canal increased by 25% from October 2024 to January 2025 compared to the same period a year ago. Panama is betting on a $1.6 billion project to dam the Rio Indio River as a long-term solution to extreme weather events, but it faces challenges. The dam’s construction is set to start in 2027 and be completed within 6 years. Therefore, even if successful, Panama might face another extreme drought until then. Furthermore, the process will force thousands of Panamanians to relocate; otherwise, the water will drown their homes.
U.S. and Panama relations
Recently, the Panama Canal became a huge topic in the U.S. after President Donald Trump asserted that the United States should retake control of the Panama Canal from Panama. Without going too deep into the history, it is worth noting that the U.S. used to control the canal and the Canal Zone surrounding it in the past but gave complete control to Panamanians in 1999. Before the handover, Panama’s government negotiated a 25-year contract to operate the container shipping ports at the canal's Atlantic and Pacific outlets. Panama signed an agreement with an investment holding company based in Hong Kong. Trump did not like that, claiming that the Chinese military was controlling the Panama Canal and that American vessels were being cheated on transit tolls.
On March 5, the U.S. private equity firm agreed to purchase the non-Chinese assets of a Hong Kong-based subsidiary, including terminals at Panama's ports. The potential deal coincides with immense pressure from Trump, but the Hong Kong company claims that it is not a result of political pressure. The sale is subject to approval by the Panamanian government, while the Panama Canal remains one of the chief revenue sources for Panama.
Part III: The Costs Are Rising
The Red Sea and Panama Canal disruptions are not the only reason; they hugely contributed to the rising shipping costs. In the last few months, there has been a rise in new fees and surcharges within the logistics industry. To comply with changing legislations and to deal with the pressures caused by geopolitical factors, many major global shipping companies have introduced new fees – Port Congestion Surcharge, Peak Season Surcharge, Europe Environment Surcharge, Import Surcharges, Emergency Operational Surcharge, Panama Canal Transit Surcharge, Red Sea surcharges. The additional fees have many different names, but the outcome is the same: costs are rising.
New or increased charges are not limited to sea and ocean freight—they pass down the supply chain. For example, in the U.S., parcel delivery services and last-mile delivery providers also increased charges. They implemented new fees, such as an inbound processing fee or duty and tax forwarding fee. Additionally, some carriers introduced the minimum billable weight for parcels. The convenience of receiving a foreign parcel to your doorstep is becoming increasingly expensive for the final consumer.
How KATA Might Help
Keeping up with a constantly evolving situation in all parts of the logistics world can be confusing and overwhelming. Experts at KATA Global Logistics closely monitor the situation and can advise your business on the best action plan.
Our team is always here to assist you, whether your goods travel through the Suez and Panama Canal, or not. We work with clients shipping via ocean, air, rail, or road freight daily, dealing with regulations, customs, and tax compliance. We offer tailored solutions that adapt to shifting market needs, focusing on efficiency, cost-effectiveness, and customer satisfaction.
Contact KATA today and unpack the complex world of logistics more easily!
Comments