Higher shipping costs caused by disruptions in the Red Sea and Panama Canal mean that consumers in Barbados and other small island developing states (SIDS) could face a near one per cent increase in prices next year.
The cost of processed foods alone is expected to increase by 1.3 per cent, a simulation exercise by UN Trade and Development (UNCTAD) concluded. The findings are shared in its Review Of Maritime Transport 2024 report.
At a recent press conference to launch the report, director of UNCTAD’s division of technology and logistics Shamika Sirimanne said growing maritime “choke points”, particularly those in the Red Sea and at the Panama Canal, meant that SIDS would be among the hardest hit “in terms of rising price levels of food and other essential goods”.
“The small island developing states also rely heavily on shipping for essential imports, but their maritime connectivity has declined by nine per cent on average over the past decade, making their isolation more pronounced,” she said.
UNCTAD conducted a simulation exercise to assess the impact of the freight rate increases from October 2023 to June this year on prices and economic activity. It concluded that global consumer price levels will increase by 0.6 per cent by around the end of 2025 due to the Red Sea crisis and the Panama Canal disruption.
The consumer price burden was found to be highest for SIDS.
“In this simulation, SIDS would be the most affected economic group, with a simulated consumer price impact of 0.9 per cent, due to their heavy reliance on maritime shipping for their economic activities,” the report stated.
“Specifically, processed food prices are expected to rise by 1.3 per cent in SIDS, contributing 0.26 percentage points to the overall consumer price increase, as SIDS depend heavily on processed food imports by sea.”
UNCTAD said the simulation results highlighted the significant food security risk in SIDS and least developed countries from the global shipping choke-point disruptions.
The report said that the simulation also shows that real GDP will be reduced by 0.06 per cent globally [and] the negative impact on SIDS is double the world average, underscoring their heavy economic reliance on seaborne trade and their limited ability to replace imported goods with domestic production”.
Given these challenges Sirimanne said there was a need to “strengthen international cooperation and in-house monitoring systems to stabilise trade routes; provide early warning and enable rapid efficient rerouting of vessels; diversify shipping routes and support regional trade initiatives to reduce dependency on long distance routes; and boost intra regional trade flows”.
UNCTAD also said in its Review Of Maritime Transport that uncompetitive shipping costs, high port handling charges and outdated infrastructure have been flagged as major threats to the viability of maritime services in Barbados and other Caribbean destinations.
The publication noted that “shipping a 40-foot container from Miami, United States, to small island developing states (SIDS) in the Caribbean can be up to four times more expensive than shipping the same container to China or Argentina”.
Warning that Caribbean ports are “under pressure”, UNCTAD said: “Ports in the Caribbean are facing mounting operational challenges. Port handling charges are two to three times higher than in similar ports globally, worsened by inefficient processes, poor management, and infrastructure shortages.
“The competition between cruise ships and cargo vessels adds to the strain, further limiting trade efficiency. One issue is the high cost of freight. This is driven by ineffective liner routes, limited carrier competition and diseconomies of scale,” UNCTAD said.
Another pressing issue was “insufficient inter-island connectivity, partly due to the high cost of port services and a tax structure that hinders regional integration and short sea shipping”.
“Port handling charges in the Caribbean are two to three times higher than in similar ports elsewhere. For instance, shipping a container from Shanghai to Miami can be cheaper than shipping it to a neighbouring island 100 miles away. These high costs are often linked to procedural inefficiencies and poor port management,” it reported.
“Inadequate infrastructure further compounds these challenges. Many Caribbean ports are ill-equipped to handle modern vessels or large volumes of cargo. The scarcity of berths often means prioritising cruise vessels over cargo vessels.”
UNCTAD reminded that experts at the Global Supply Chain Forum, held in Barbados from May 21 to 24, provided several strategic recommendations to address the connectivity challenges mentioned. The following suggestions were made.
• Addressing dis-economies of scale to reduce costs – Consolidate cargo volume with other ports to reduce freight costs and inefficiencies along the logistics chain. Encourage collaboration among small and medium enterprises to consolidate shipments and reduce individual shipping costs.
• Infrastructure development – Enhance port infrastructure through private investment to handle new-Panamax ships of 13 500 twenty food equivalent units, fostering substantial growth in transshipment activities in the Caribbean. Develop Third-Party Logistics plan and commission a regional approach to logistics. Take advantage of services value chains to enhance connectivity.
• Improving logistics performance – Improve customs clearance processes. Enhance transport infrastructure through ports and improve internal connections. Develop local logistics competencies through partnerships with abroad investors.
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