UNCTAD: Climate and trade shifts threaten maritime stability in Latin America and the Caribbean

The maritime sector in Latin America and the Caribbean is facing unprecedented challenges as climate disruptions, freight rate volatility, and connectivity issues deepen trade inequalities, especially for small island developing states (SIDS), the United Nations Conference on Trade and Development (UNCTAD) revealed in a report.

According to the organization’s Review of Maritime Transport 2024, the Panama Canal represents a ‘stark example’ of the wider issues facing the region, particularly so in the context of climate change which has already led to not just increased costs, but also delays as well as fewer transits.

Severe drought in 2023 and early 2024 drastically reduced water levels in the Panama Canal, restricting daily ship transits and forcing vessels to take longer, more expensive routes, with transits dropping 40% compared to their peak.

The report highlights that this diversion increased the sailing distances for affected routes by approximately 31%, adding both time and cost to voyages, thus impacting trade flows between the Americas and Asia.

Moreover, greenhouse gas (GHG) emissions also picked up an upward trajectory due to greater travel distances and speed to compensate for the detours.

These limitations cut cargo volumes and put into spotlight the Panama Canal’s ‘vulnerability’ as a critical trade conduit that links the Atlantic and Pacific Oceans, the report stated. Specifically, while mid-2024 saw some relief from improved water management practices and the rainy season, transits through the Panama Canal were still down by about 20% compared to 2023 levels.

Seeking to remedy this reality, the Panama Canal has invested in a number of sustainability initiatives over the past couple of years. In February this year, for instance, the canal authority set aside a whopping $8.5 billion for capital investments, and a large portion of that was intended for decarbonization efforts.

The largest chunk of the amount ($3.5 billion) was allocated for infrastructure and equipment, with the rest going to digital transformation and other, wider decarbonization-oriented improvements on the waterway.

In 2023, freight rates across Latin America and the Caribbean saw significant shifts, underscoring the region’s ‘sensitivity’ to global trade and geopolitical developments.

UNCTAD’s report revealed that the Europe-to-South America routes experienced a sharp 36% drop in rates, reflecting weaker demand, while routes from Africa to South America went up by 20%.

This increase is believed to have been fueled by changes in global grain sourcing, with Egypt now importing from Brazil and the U.S. rather than Ukraine—a shift that the report emphasized has redirected traditional trade patterns and added new pressures to shipping dynamics in the region.

Small island developing states in the Caribbean reportedly face even steeper challenges, having lost 9% of their maritime connectivity over the past decade.

As per UNCTAD, this decline has made trading more expensive and has slimmed the nations’ competitiveness in global markets.

As explained, while Trinidad and Tobago stands as a central hub, smaller island ports struggle with infrastructure and efficiency gaps, which add to operational costs and hinder trade. Without strategic improvements, the lack of connectivity might widen trade inequalities further, isolating smaller economies and making it harder for them to thrive in an increasingly connected world.

As disclosed in UNCTAD’s review, Caribbean ports have been grappling with ‘deep-rooted’ operational challenges that are driving up costs and slowing down trade.

Port handling charges in the region are said to be two to three times higher than at similar ports worldwide, a disparity fueled by inefficient processes, infrastructure shortages, and management issues. The pressure is compounded by competition between cruise ships and cargo vessels, which fight for limited dock space, further complicating cargo handling and disrupting schedules.

For SIDS, where economies heavily rely on maritime trade, the report stressed that inefficiencies pose serious obstacles to growth. The region’s trade imbalance adds to the challenge: inbound ships often arrive full of goods but leave empty, a costly pattern that drives up operational expenses and weakens the long-term viability of shipping routes.

UNCTAD shared that addressing these inefficiencies is critical for SIDS, which risk being left behind if rising costs and logistical issues continue to undercut their ability to compete on the global stage.

According to UNCTAD, a long-term strategy focused on climate resilience, port efficiency and fair access to maritime services is ‘essential’ for ecologically responsible development in Latin America and the Caribbean region. Without it, the region’s trade and economic growth could plummet as risks strain it further.

The International Maritime Organization (IMO) has pushed concrete measures to decarbonize shipping while aiming to shield SIDS and least-developed countries (LDCs) from any potential negative impacts on their economies.

At the world’s first Global Supply Chain Forum, organized in May 2024 by UNCTAD and the Government of Barbados in Bridgetown, IMO Secretary-General Arsenio Dominguez argued that decarbonization was one of two major challenges currently facing the worldwide maritime industry, along with geopolitics, particularly with growing tensions in the Red Sea and vessels avoiding the Suez canal, seeking other routes.

During the forum, the two entities organized several side events to discuss the energy transition of SIDS and LDCs in the Caribbean and beyond, with discussions regarding the opportunities for green shipping in this part of the world.

More recently, namely in November, the IMO shared details of four pilot projects aimed at assisting these regions with their sustainability efforts.

These include renewable energy production in ports and port call data sharing to support “just-in-time” shipping. The projects are set for implementation in Mauritius, St. Kitts and Nevis, Namibia, and Trinidad and Tobago as part of the International Maritime Organization’s EU-funded Global Maritime Technology Center Network (GMN) Phase II project.

Among the projects are the Mauritius Port BioH2Energy, a circular bio-derived fuel and hydrogen technology that reportedly converts organic waste into energy, renewable energy-powered microgrids in St. Kitts and Nevis, port call optimization in Namibia, and in Trinidad and Tobago.

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