Droughts Threaten Global Trade Routes and Supply Chains

August 29, 2023

Drought, exacerbated by fossil fuel consumption, is affecting ship traffic in the Panama Canal and threatening to dry out the Mississippi River, impacting American corn and wheat exports. Droughts affecting multiple trade routes could disrupt the transport and prices of goods like liquefied natural gas and coffee beans.

Last year, Europe faced its worst dry spell in 500 years, affecting cargo transport along the Rhine in Germany, and drought slowed ships on China’s Yangtze River, forcing goods to be transported by road at a higher cost. These issues are becoming more frequent due to increased global temperatures and the return of El Nino, impacting global trade and potentially leading to higher prices or less availability for consumers.

Additionally, abnormally hot ocean waters are intensifying storms, affecting ocean shipping, which transports 90% of global goods. The Panama Canal is currently experiencing an exceptionally dry year, leading to restrictions on the number of ships passing through daily and the amount of cargo they can carry. This situation is not expected to improve soon as there is little rain in the forecast. Moreover, global trade contributes to climate problems as ships use heavy fuel oil, accounting for about 3% of global greenhouse gas emissions.

How does drought affect global trade and supply chains?

Drought affects global trade and supply chains by slowing down or halting ship traffic on crucial trade routes like the Panama Canal, the Mississippi River, the Rhine, and the Yangtze. This forces companies to transport goods by road, which is costlier, or reduce cargo volumes, leading to disruptions in global trade, potentially higher prices for consumers, and less availability of goods.

What are the potential impacts of drought on consumers?

Drought can lead to higher prices for consumers as the cost of transporting goods increases due to reduced cargo volumes or the need to use alternative, costlier transportation methods. Additionally, it can lead to less availability of goods on the shelves as retailers prepare for holiday shopping or other peak seasons.

How does global trade contribute to climate change?

Global trade contributes to climate change as ships use heavy fuel oil, which accounts for roughly 3% of global greenhouse gas emissions. Even though the industry has agreed to neutralize its emissions by or around 2050, climate advocates have called the plan “vague,” indicating that more concrete actions are needed to address the issue.

What are the potential long-term impacts of recurrent droughts on global trade?

Recurrent droughts can lead to long-term impacts on global trade by forcing permanent changes in transportation routes, increasing transportation costs, and causing disruptions in supply chains. This can lead to higher prices for goods, less availability of products, and economic losses for countries and companies that depend on global trade.

How can the international community address the challenges posed by drought on global trade and supply chains?

The international community can address the challenges posed by drought on global trade and supply chains by investing in infrastructure that is resilient to climate change, developing alternative transportation routes, and promoting the use of cleaner and more sustainable transportation methods. Additionally, global efforts to reduce greenhouse gas emissions and combat climate change are crucial to mitigating the impacts of drought and other extreme weather events on global trade and supply chains.

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