Connectivity in Crisis: The Problem with Shipping in the Pacific
Nitya Labh
Nitya Labh is a former James C. Gaither Fellow at the Carnegie Endowment for International Peace and an incoming Schwarzman Scholar at Tsinghua University in Beijing. Her research focuses on maritime security, island states, and Indo-Pacific geopolitics.
The views expressed in this publication are those of the author(s) and do not necessarily reflect the policies or positions of the Pacific Islands Development Program or the East-West Center.
Featured photo courtesy of Lurii Laimin via Pexels.
“War in Ukraine has increased the cost of food and fuel for our countries. Not just in maritime security, but in maritime transport and shipping. Islands in the Pacific by nature must travel significant distances by air or by sea to reach one another. Increased cost of shipping has made their economies, their development, and their integration unaffordable. The Micronesian Shipping Commission is meeting now to try to save commerce in the region.” (Gustav Aitaro, Minister of State, Republic of Palau, September 2022, Indo-Pacific Islands Dialogue).[1]
The Pacific Islands is an important region for geopolitical competition, global economy, and the environment. Despite its importance, outside partners have largely ignored the Pacific’s energy and connectivity challenges. Since the Russian invasion of Ukraine in 2022, Pacific Island countries (PIC) have faced a significant rise in fuel and commodity prices.[2] The outbreak of conflict in the Middle East in 2023 continued these trends: in February 2024, the cost of global freight shipping reached its highest value on record.[3] The volatility of fuel and shipping prices have exacerbated existing economic vulnerability and shipping problems in the Pacific. To ensure that Pacific Island countries do not become collateral damage in global politics, outside partners like the United States must help secure Pacific supply chains against damaging external shocks.
The Pacific Islands are the most heavily dependent region for imported fossil fuel in the world, with 95 percent of its supplies imported from abroad.[4] These small island states maintain massive maritime territories, with oceans accounting for more than 98 percent of the region’s total area.[5] Their oceans and coastlines provide critical resources for the area’s critical economic sectors like fishing, deep sea minerals, and tourism. In this way, ocean connectivity, transportation, and trade are fundamental for the Pacific region. Because of the vast oceanic geography and economy, the majority of the Pacific’s fossil fuel usage is concentrated in maritime transport (70 percent).[6] Collectively, these factors make Pacific transport the most challenging network to maintain on a per capita and per sea mile basis in the world.[7] PICs are increasingly dependent on international trade due to shifting consumption patterns and economic growth. As a result, supply chains are easy to disrupt.
Over the past few years, fossil fuel sources have become increasingly volatile, cost-prohibitive, and unsustainable for maritime services. For example, from May to June 2022, petroleum prices in Samoa increased by 11 percent for unleaded fuel and 20 percent for diesel.[8] Increased fuel prices have led to an increase in the cost of food and basic commodities across the Pacific. Across the Pacific Islands, the Consumer Price Index rose by 8 percent in the first half of 2022 alone, greater than the global average over the previous three years.[9]
A higher cost of living has caused the islands’ already small domestic demand for goods to diminish, further shrinking shipping demand across the Pacific. Decreased shipping quantities discourages commercial activity and most Pacific Island countries are highly import dependent. Thanks to their “micro-economies,” island nations’ import volumes do not meet the economic threshold to make it commercially viable for private companies to provide regular shipping. When demand drops, commercial ships cannot justify the high financial and time costs to travel to the region. A lack of commercial presence in the region makes basic goods and services inaccessible to Pacific Island countries. Palau’s Minister of State Gustav Aitaro explains this situation: “A colleague was ordering a small truck from [Asia]…It takes three hours by flight, one day by [boat], and costs $30,000 USD just to ship that one truck. So, I told them, let’s forget about the truck and reallocate the $30,000.”[10] To date, the challenge is providing regular and affordable shipping services to Pacific Island states at the domestic and regional level. As import fuel prices continue to increase, the demand for global emissions reductions also grows, threatening Pacific regional development and stability.
Supply chain breakdowns brought on by global conflict have added to a region already under strain. The Pacific Islands have been hit by multiple shocks in the last few years. COVID lockdowns suspended tourism, international borders were closed, commodity exports dropped significantly, and critical revenue was lost. Economists argue that PICs were already stuck in a low-growth path even before the pandemic.[11] Numerous studies have shown that, at both the domestic and international level, PICs have struggled to find long-term, sustainable, and cost-viable solutions for sea transport. This is true even during periods of low fuel prices.[12]
Supply chain challenges significantly inhibit the Pacific region’s sustainable development potential. The pandemic has triggered large GDP contractions, higher unemployment, increases in public debt, and interruptions to social and medical services. For example, researchers report that children attending boarding school have had to return home in Fiji because fuel price increases meant villagers could no longer afford the cost of trips for weekly food rations. Similarly, in Kavala Bay, health nurses decreased pregnancy checks to only monthly patient visits. Similar examples can be found across the region.[13]
In light of these challenges, global conflicts have revealed several areas ripe for international cooperation on shipping and commercial access in the Pacific. First, regional partners should work with their Pacific Island counterparts to help strengthen supply chain resilience. While countries like the United States have committed to increased engagement with Pacific Island leaders, these dialogues must be driven first and foremost by islands’ regional interests and priorities.
Second, decreasing the region’s fossil fuel dependency is key to increasing supply chain resiliency. To date, efforts to reduce fossil fuel reliance in the Pacific have focused almost exclusively on its use in electricity generation.[14] These efforts reflect global priorities and biases from outsiders who do not recognize Pacific realities. For example, donors to the 2013 Pacific Energy Summit in New Zealand committed over $535 million USD to reduce regional diesel dependency.[15] Likewise, the U.S. Department of State recently released a report about advancing transportation and energy efficiency in Tonga with a sole focus on electric vehicles and land-based power infrastructure.[16] None of these projects included sea transport or shipping considerations.
Given the concentration of fossil fuel usage in maritime transport, the exclusion of shipping from these initiatives significantly undermines their efficacy. Non-carbon or low-carbon alternatives in shipping and transportation could help decrease fuel dependency at the local and regional level where maritime distances are shorter. While some research supports the feasibility of low-carbon alternatives, more testing is needed to demonstrate the commercial scalability and governance capacity to implement these solutions.[17]
Lastly, the Pacific region lacks adequate data about its transportation sector. Shipping operations and arrangements are poorly documented and reported. Aside from a few stray studies over the past five decades, there is no forum for data collection and research on Pacific transport needs and/or fossil fuel footprints.[18] Likewise, there is no data that demonstrates how renewable energy alternatives compare to fossil fuels in regional shipping. Establishing reliable systems of data collection and compilation are necessary for cost-benefit analysis of supply chain adaptations in the Pacific. On a global scale, research has identified options to reduce fuel emissions, but the international solutions are often inappropriate or inaccessible for the Pacific context.
Island nations experience global crises differently. The unique economies and geographies of Pacific Island countries make them vulnerable to major supply chain shocks unlike any other region of the world. As the global economy grapples with geopolitical competition, post-pandemic recovery, and ongoing conflict, the Pacific Islands remain vulnerable to continued supply chain shocks that jeopardize their development and prosperity. The Pacific Islands are critical but often undervalued partners in the Indo-Pacific. As countries like the United States increase their efforts to strengthen their own supply chain resilience, they must keep the Pacific Islands in mind.
Notes
[1] Gustav Aitaro, “Special Address” (lecture, Ocean Nations: The 2nd Annual Indo-Pacific Islands Dialogue, New York, NY), streamed live on September 19, 2022, YouTube video, 49:59, https://www.youtube.com/watch?v=w8bHb wOXTT0.
[2] The International Bank for Reconstruction and Development and The World Bank, Pacific Economic Update, The World Bank, March 2024, https://openknowledge.worldbank.org/server/api/core/bitstreams/b4ea7a3e-f0bb-4f05-9db3-ccc4a82a575e/content.
[3] Statista Research Department, “Global Container Freight Rate Index,” Statista, January 2024, https://www.statista.com/statistics/1440707/global-container-freight-index/.
[4] International Institute for Sustainable Development, “Five Pacific Countries Launch Partnership to Decarbonize Shipping Industry,” SDG Knowledge Hub, October 3, 2019, https://sdg.iisd.org/news/five-pacific-countries-launch-partnership-to-decarbonize-shipping-industry/.
[5] Pacific Office, “Ocean-Driven Security Challenges in the Pacific,” United Nations Development Program, June 8, 2021, https://www.undp.org/pacific/news/ocean-driven-security-challenges-pacific.
[6] Alison Newell, Peter Nuttall, and Elisabeth Holland, “Sustainable Sea Transport for the Pacific Islands: The Obvious Way Forward,” Pacific Center for the Environment and Sustainable Development, University of the South Pacific (2014), https://sustainabledevelopment.un.org/content/documents/591456-AlisonNewell-Sustainable%20sea%20transport%20for%20the%20Pacific.pdf.
[7] Alison Newell, Peter Nuttall, Biman Prasad, Joeli Veitayaki, “Turning the Tide: The Need for Sustainable Sea Transport in the Pacific,” Marine Policy 75 (2017): 249-59, https://doi.org/10.1016/j.marpol.2016.01.009.
[8] SIDS Solutions Platform, “Pacific Small Island Developing States (SIDS) Solutions Forum,” (lecture, Food and Agriculture Organization of the United Nations, Apia, Samoa, November 28-30, 2022), https://www.fao.org/sids-solutions/events/detail/pacific-small-island-developing-states-(sids)-solutions-forum/en.
[9] International Financial Statistics and Data Files, “Inflation, Consumer Prices (Annual %) – Samoa,” International Monetary Fund, 2022, https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=WS.
[10] Gustav Aitaro, “Special Address,” (lecture, Ocean Nations: The 2nd Annual Indo-Pacific Islands Dialogue, New York, NY, September 19, 2022), https://carnegieendowment.org/2022/09/19/ocean-nations-2nd-annual-indo-pacific-islands-dialogue-event-7921.
[11] Asia & Pacific Department, “Pacific Islands Monitor,” International Monetary Fund, Issue 17, October 17, 2022, https://www.imf.org/-/media/Files/Countries/ResRep/pis-region/small-states-monitor/pacific-islands-monitor-issue-17-october-2022.ashx.
[12] Alison Newell, Peter Nuttall, and Elisabeth Holland, “Sustainable Sea Transport for the Pacific Islands: The Obvious Way Forward,” Pacific Center for the Environment and Sustainable Development, University of the South Pacific (2014), https://sustainabledevelopment.un.org/content/documents/591456-AlisonNewell-Sustainable%20sea%20transport%20for%20the%20Pacific.pdf.
[13] Alison Newell et al., “Turning the Tide: The Need for Sustainable Sea Transport in the Pacific,” Marine Policy, Volume 75, (2017): 249 – 259, https://doi.org/10.1016/j.marpol.2016.01.009.
[14] Peter Nutall et al., “A Review of Sustainable Sea-Transport for Oceania: Providing Context for Renewable Energy Shipping for the Pacific,” Marine Policy 43 (2014): 283-87, https://doi.org/10.1016/j.marpol.2013.06.009.
[15] “Pacific Island Summit Opens,” Secretariat for the Pacific Regional Environmental Program (SPREP), March 25, 2013, https://www.sprep.org/news/pacific-energy-summit-opens#:~:text=24%20March%202013%2C%20Auckland%20New,Government%20and%20the%20European%20Union.
[16] Prateek Joshi et al., “Advancing Transportation Efficiency and Electric Vehicles in Tonga: A Review of Relevant Trends and Best Practices,” Renewable Energy Laboratory, January 2023, https://www.nrel.gov/docs/fy23osti/84078.pdf.
[17] Peter Nutall, “Sustainable Sea Transport for the Pacific Islands: The Obvious Way Forward,” Australian National University, 2014, https://dpa.bellschool.anu.edu.au/sites/default/files/publications/attachments/2015-12/SSGM_IB_2014_36Nuttall_0.pdf.
[18] Peter Nutall et al., “Policy and Financing—Why Is Sea Transport Currently Invisible in the Search for a Low Carbon Future for Pacific Island Countries?”, Frontiers in Marine Science, July 15, 2014, https://www.frontiers in.org/articles/10.3389/fmars.2014.00020/full.