Amidst Red Sea shipping disruptions hitting the five-month mark, India may well have
countered the formidable tide with the highest monthly merchandise exports of USD 41.40 billion — an increase of about 12 per cent year-on-year — but the crisis is still brewing and the likely visibility of the adverse impact on trade data in the new fiscal – remains a key challenge for Indian exporters. Ashwani Kumar, President, FIEO points out that recent tensions in West Asia, especially the threat for consignments routing through the Red Sea, has further added to woes of the exporting community, as the freight rates have gone up unimaginably high, with the burden of various surcharge.
With escalating attacks presenting no relief in sight for beleaguered global commerce, the Red Sea crisis will adversely impact trade volumes in substantial way in 2024, cautions Global Trade Research Initiative report, as rising shipping and insurance costs, delayed arrival of shipments are expected to continue to disrupt global value chains, squeeze margins and make exports of many low margin products unviable from current locations. Countries in Asia, Africa and Europe will face most disruption across industries.
The crisis began in a major way on 19 October, 2023 with Iran-backed Houthis launching attacks on civilian-operated cargo ships and affecting global trade and supply chains through the Suez Canal – handling about 30 per cent of global container trade. Five months on, transit times for ships detouring around Africa’s Cape of Good Hope has increased by 30 per cent and the global container shipping capacity dropping by about 9 per cent as per latest data.
The conflict impacts Indian trade, especially with the Middle East, Africa, and Europe as it has increased shipping costs to the extent of 40-60 per cent and delays due to rerouting of upto 20 days more, besides pushing up insurance premiums to the tune of 15-20 per cent. While shipping costs for all container goods, including cars and electronics, are up, confectionery companies are hit by high cocoa prices and shortages due to late deliveries from Africa, reducing profits and textile and leather industries, which operate on thin margins, are renegotiating shipping costs with buyers, impacting earnings.
Moreover, the volume of trade that passed through the Suez Canal has dropped by 50 per cent year-over-year in the first two months of the year, and the volume of trade transiting around the Cape of Good Hope has surged by an estimated 74 per cent above last year’s level. By mid-February 2024,