Global trade flows are likely to witness modest growth in 2024 and avoid a potential downturn sparked by attacks on cargo ships in the Red Sea.

Though the attacks on shipping vessels in the Red Sea that began in October 2023 have disrupted trade across most categories and goods, forcing longer shipping routes and delays, total global trade is set to grow by 2% annually in 2024, according to S&P Global Market Intelligence forecasts.

The increase represents a marked improvement from 2023, when lingering global supply chain issues that arose during the onset of COVID-19 largely faded away. In the longer term, global trade will only grow higher, yet the immediate future represents a modest uptick as trade largely normalizes following years of disruption.

"We're not expecting stellar growth and there aren't really any sectors where we're seeing stellar growth, either," said Chris Rogers, head of supply chain research at Market Intelligence. "It's more of a return to normal."

Stabilized outlook for US trade

While the US — the world's largest goods importer — saw a dip in the value of inbound goods in 2023, at $2.867 trillion, imports are set to see a return to slight growth at $2.915 trillion in 2024, according to Market Intelligence forecasts.

"The US story is pretty similar to the global picture," Rogers said. "From a total trade perspective, this year can be characterized as one of stabilization and slow growth." The US trade deficit for goods grew to $89.1 billion in December, according to the latest data published by the US Census Bureau, though the full-year deficit for goods shrank 10.3% to $1.062 trillion.

Attacks in the Red Sea have largely affected imports into Europe as ships destined for the region from Asia have diverted around Africa. That has added as much as 10 days to shipping times, driving costs for logistics companies higher at a time when European economies and their imports are weakened.

The total value of imports into the EU was down 13.6% during the first 11 months of 2023, compared to the same period in 2022, according to UN Comtrade data. Although the US also recorded a decline in import values in 2023, the change from 2022 levels amounted to just 1.6%.

Supply is a greater concern for maritime shipping

Industrywide overcapacity of container ships is dwarfing the extra time and costs of conflict in the Red Sea, A.P. Møller - Mærsk A/S CEO Vincent Clerc said on the shipping giant's Feb. 8 earnings call. The disruption instead has helped temporarily ease some of that oversupply, allowing ships to travel at faster speeds to reduce delays.

"However, the structural imbalance will catch up during 2024 and exacerbate over time, irrespective of whether the situation in the Red Sea endures or resolves itself," Clerc said.

Major shipping companies' share prices escalated in 2021–2022 as supply chain bottlenecks from pent-up demand caused freight prices to surge. Clerc said the current situation in the Red Sea was "fundamentally different" from that period.

"The Red Sea disruption from a shipping perspective is a rerouting of cargo along longer routes," Clerc said. "We see no sign of congestions or bottleneck or shifts in demand. The global supply chain remains fluid."

Maersk expects freight rates to normalize "regardless of the duration ... of the Red Sea disruptions" as the oversupply of vessels weighs on the sector.

Shorter supply chains

Beyond the immediate impacts of the Red Sea turmoil, many other risk factors threaten the cautiously positive outlook on global trade for the year, including the potential for disruption of other maritime choke points, upcoming elections in the US and globally that could usher in greater reliance on tariffs, and worker strikes.

"These disruptions not only undermine the growth of trade but also contribute to higher consumer prices, which may call for further tightening of monetary policy or at least maintaining higher interest rates," said Kaleb Abreha, an assistant research scientist with the Mosbacher Institute for Trade, Economics and Public Policy.

The unpredictable nature and vast impact of such events will likely act as another catalyst for companies to rethink their reliance on ever-riskier globalized supply chains.

"If the situation continues for the rest of the year or is a more permanent shift, then it's an extra reason for companies to change the geographic nature of their sourcing," said Rogers with Market Intelligence. "The longer it goes on and the more permanent the issues look, then the more likely it is that those strategic decisions are taken."

Finding avenues for reshoring (bringing production back to a home country) or nearshoring (moving production to nearby countries) will remain a key consideration for companies in 2024 to mitigate the risks inherent to global supply chains.

"We are seeing a segmentation of the world into three poles: North America and Europe; Asia, [Association of Southeast Asian Nations] countries and China; and Latin America and Africa," said John Miller, chief economic analyst at Trade Data Monitor.

"These three poles will keep consolidating — that's the big picture we're seeing, with trade risks as high as they've been in a long time."