GLOBAL shipping routes have faced significant disruption in recent years, presenting both challenges and opportunities for Jamaica’s maritime sector. According to Rodrigo Olea, chief operating officer at Kingston Wharves, Jamaica is strategically positioned to capitalise on these changes as a major hub in the global shipping industry.

“In one year, the Houthi Rebels have attacked 130 ships crossing the Suez Canal,” Olea revealed while providing an update on the logistics industry during the Institute of Chartered Accountants of Jamaica’s (ICAJ) 2024 business conference on Thursday. “This forces shipping lines to take a costly detour, rerouting ships from China to Europe through the Cape of Good Hope and then to the Mediterranean, adding 8.5 days to transit times.”

The diversions from the ongoing crisis in the Red Sea have resulted in a significant increase in shipping capacity, with 24 per cent more ships being used than normally required. The Suez Canal, which typically utilises only 18 per cent of the global fleet, is now being bypassed in favour of the longer route, which he says is about 300 additional ships in that route — that is, 3.3 million 20-foot equivalent units (TEU) of capacity just because of the diversion.

“If those 3.3 million [TEUs] come to Jamaica and be operated by KFTL [Kingston Freeport Terminal Limited] and Kingston Wharves, it would take about 20 hours to occupy the entire capacity of Kingston’s ports. So this is big, big numbers. This picture I like the most. This is some 2019 heat map of zeroes,” he said excitedly.

During his presentation, Olea used a global map illustration to display the movement of container ships. Green icons represented regular container ships, while red icons indicated areas with a high concentration of shipping activity. In 2019 the Suez Canal showed a significant red concentration, indicating heavy transshipment traffic at that time, with no diversions in place. Currently, red areas are visible along the west coast of Africa, where ships are now transiting as a result of recent route changes.

However, he revealed that shipping companies, which had already learnt how to navigate financial challenges during the COVID-19 pandemic, are passing these extra expenses on to exporters and importers. During the COVID-19 pandemic, ports became congested, ships got stuck in places like the Suez Canal, and shipping routes were blocked or delayed. Despite these disruptions, shipping companies saw huge profits. From 2022 to 2023, 12 major shipping lines, which handle 87 per cent of global container shipping capacity, earned $330 billion in operating profits (EBIT). This amount was significant, nearly three times the global gross domestic product (GDP) over those two years. With these unprecedented profits, shipping companies began investing heavily, particularly in vertical integration. They expanded beyond shipping to control more of the logistics chain, including distribution, terminals, and transportation services.

“Today, they are trying to colonise a future where they will be involved as a single vendor from the factory to your home,” said Olea.

He also mentioned the challenges from the Panama Canal affecting global shipping between 2022 and 2024; a severe drought limited the canal’s operations, reducing transits from 36 ships per day to 24. These limitations not only cut the number of ships passing through but also restricted the amount of cargo they could carry. Though rains have recently replenished the Gatun Lake, allowing the canal to return to normal operations, the situation has underscored vulnerabilities in global shipping routes. With approximately 80-90 per cent of the world’s goods transported by sea, the importance of maritime trade is evident. Based on research presented by Olea, in 2023 the global GDP was valued at $102 trillion, and the value of maritime trade was $22 trillion, representing 21.6 per cent of global economic activity. The US, China, Japan, India, France, the United Kingdom, and Canada collectively make up a substantial portion of this trade. Olea notes that, despite global challenges, maritime trade has seen a 3.2 per cent compound annual growth rate over the past 32 years, emphasising its long-term importance. Notwithstanding, he highlighted that there are other disruptions on the rise, including fluctuating fuel prices due to the ongoing conflict in the Middle East, which continues to escalate. This instability contributes to uncertainties in sourcing, as vendors may face challenges with raw materials, while shipping routes experience unexpected complications. Furthermore, ageing infrastructure and a lack of space at ports are significant challenges. Congestion can result in ships waiting for days, which incurs additional costs. To navigate this new landscape, Olea suggests it’s crucial for shipping companies to plan strategically by establishing long-term contracts and building inventory buffers.

“For long-term contracts, carefully and again, build on buffers. Maybe overstocking now is not what we were taught. Overstocking now is not a demon. Overstocking is a help. Review your sales forecast often and collaborate with logistics partners, with Kingston Wharves, for example,” he advised.