Research - 19.06.2026 - 10:00
In March 2021, strong winds caused the cargo ship Ever Given to get stuck in the Suez Canal, blocking the canal and all shipping through it for six days. According to a WTO report, this delay of less than a week reduced world trade by between US$6 and US$10 billion. This event highlighted the vulnerability of global trade to disruptions and the extent to which the world economy still depends on a handful of shipping routes.
The study, “The fragility of the global trading system” investigates maritime trade routes and how they indirectly affect the global economy. HSG Professor Ferdinand Rauch along with Stephan Maurer (UPF Barcelona School of Management) and Luke Heath Milsom (KU Leuven) wanted to dig deeper into the subject.
What did you find?
We already knew that around 90 percent of global trade take place on ships, with 12-15 percent of global maritime trade passing through the Suez Canal and another six percent through the Panama Canal. Because both canals are vulnerable to risks arising from geopolitical tension, climate change and political uncertainty we wanted to get a clearer picture of how a closure to these waterways would affect global trade.
Using what is called a gravity model framework, we simulated the impact of several potential shocks to the global shipping system:
Calculating shipping distances under these scenarios, we were able to look at the effects these scenarios could have on global trade, GDP, and welfare.
And what were your findings?
Closure to the Panama Canal would cause the largest drop in global trade, reducing it by nearly 3%. Closure of the Suez Canal reduces global trade by 2.5%. and closure of the Strait of Malacca would reduce global trade by 1.7%.
Do you see this as significant?
Yes, in the end we have become reliant on specific choke points that are vital to the movement of goods globally. These are large numbers, considering the vast amounts of resources invested in trade infrastructure to achieve much smaller increases in trade. We also looked at two the hypothetical opening of two new routes: the Northwest Passage (through the Artic Ocean) and the Kra Canal (through Thailand). These two Straights could increase global by 0.6% and 0.7%, respectively which is a modest increase. I also wanted to point out that we analysed what effects closure to these waterways would have on local economies.
And what did you find?
Like we expected, the Panama and Suez canals are the most critical chokepoints to global trade resilience. Closure to these canals effect the GDP and the welfare of the countries that are closest to it. Specifically, if the Panama Canal closed, Panama would suffer a loss of over 9% of GDP, Egypt and Sudan would lose over 5% from a Suez closure and Malaysia would lose over 4% of GDP from Malacca Strait closure.
Interestingly, the United States and China would be significantly affected by Panama and Malacca disruptions respectively. Both would also benefit modestly from the opening of the Northwest Passage.
Since the start of the US invasion in Iran at the end of February 2026, we have become aware of the Strait of Hormuz. Did your study look at this or can you extrapolate your findings to this area?
The Strait of Hormuz is another major bottleneck in global trade. However, our gravity framework is primarily designed to estimate substitution across alternative shipping routes. Since the Arabian Gulf has no viable exit other than the Strait, the model cannot capture meaningful substitution for these ports and is therefore not well-suited to this context.
Moreover, a simulation of a closure of the Strait of Hormuz should focus on the trade of oil. Modelling oil and its particular trade network, demand structure and supply chains would need a different model altogether.
What can we do to protect ourselves from what you call a “fragile system”?
To protect against the vulnerabilities of a "fragile system," businesses engaged in international trade should keep a few critical strategies in mind. First and foremost, global supply chains remain inherently volatile. Building strong global alliances is now essential when deciding on logistics and supplier locations.
Moving forward, companies must weigh resilience just as heavily as efficiency. Diversification and strategic inventory storage remain vital tools, as does the regular evaluation of alternative suppliers, transport routes, and backup markets. Ultimately, geopolitical and global risks must be central to everyday business decision-making.
Professor of Economics Ferdinand Rauch teaches and conducts research at the University of St Gallen (HSG). His main areas of expertise are urban economics, trade and economic history.
