For centuries the oceans have been an important avenue for world trade. And today 80% of world trade volumes are conducted via the ocean.

Roughly R5.1 trillion trade passes through the Panama Canal and as much as R19 trillion worth of goods pass through the Suez Canal annually! And right now both of these vital trade routes are at risk…

Why world trade is getting really tricky

According to a Business Insider report – around 50% less vessels are currently passing through the Suez and Panama canals…

This is huge.

You see, both the Suez Canal and the Panama Canal reduced maritime shipping distances and cost considerably. For instance, the Suez Canal shortened the distance on a maritime journey from Rotterdam to Mumbai (Bombay during colonial India) by 41%. It shortened the distance on a journey from London to Shanghai by 32%. For the Panama Canal, improvements were even more dramatic, with the strategic New York – Los Angeles route reduced by 60%. Major commercial centres could thus be serviced in less time, and the ships could be used more effectively (more trips per year).

And right now both these routes are at risk – but for different reasons.

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What’s going on with the Panama Canal?

A severe drought that began last year forced authorities to slash ship crossings in the Panama Canal by 36%.

Panama Canal administrator Ricaurte Vasquez now estimates that dipping water levels could cost them between $500 million US and $700 million US in 2024, compared to previous estimates of $200 million US.

One of the most severe droughts to ever hit the Central American country has stirred chaos in the 80-kilometre route, causing a traffic jam of vessels, casting doubts on the canal’s reliability for international shipping and raising concerns about its effect on global trade.

And as travel through the Panama Canal gets more difficult – shipping companies look to the Suez Canal for an alternative route, albeit a much longer one.

But that’s where things get tricky.

What’s wrong with the Suez Canal?

Yemen’s Houthi group has been attacking ships in the Red Sea.

The Iran-aligned group says the aim of the attacks is to support the Palestinians as Israel and Hamas wage war.

The canal can accommodate over 60% of the total world fleet of tankers when fully loaded, and over 90% of bulk carriers. It can also accommodate all container carriers, car carriers and general cargo ships.

A ship carrying Saudi crude from the Mideast Gulf can make it to Rotterdam, for example, in 6,436 nautical miles if it traverses the canal. Going around Africa increases the journey to 11,169 nautical miles, adding time and cost to a shipowner.

So clearly – any delays in the canal will have huge effects on world trade…

And that’s what we’re seeing right now.

Hundreds of ships are being diverted away from the Red Sea and Suez Canal and around Africa – specifically the Cape of Good Hope.

This adds travel time. It adds transport costs.

But it also means these ships are stopping over in South African ports to refuel, restock etc.

Many shops are also stopping over in Namibia and Mauritius now…

And there’s one little stock on the JSE that is very well positioned to profit off this trend.

The company provides logistics services for the global trade industry through its 22 offices in 11 countries, including the US, South Africa, Mauritius, Germany, Singapore and Hong Kong…

This is one to add to your portfolio..

But also keep in mind what these trade issues could mean for the rest of the world.

This poses a threat to supply chains again, as we saw during Covid (but perhaps not as extreme). It also poses upside risk to the oil price, and to transport cost. And that means inflation may remain sticky for longer.

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