Red Sea crisis hits foreign trade, freight costs, insurance premia skyrocket

Red Sea crisis hits foreign trade, freight costs, insurance premia skyrocket

The crisis in the Red Sea is taking a toll on India’s exports and imports with freight costs having shot up on some key routes by more than five fold and a 100 times jump in insurance premiums on shipping risks.

Due to rising freight rates the exporters have postponed sailings in many cases and because alternate routes avoiding Suez Canal are taking additional 14 days even imports have suffered, Director General and chief executive officer of Federation of Indian Export Organisations Ajay Sahai said.

The increase in freight rates varies with the route. Apart from basic freight rates, risk surcharge and peak season surcharge has also shot up. In some cases the surcharges come four times the basic freight cost. The cost of insurance has increased from 0.05% of the value of shipment to 0.5%.

On Thursday, the Ministry of Commerce and Industry held a meeting to take stock of the impact of the crisis on Indian trade. Officials of the Ministry of Ports, Shipping and Waterways also participated in the meeting apart from representatives of Container Shipping Lines Association, FIEO and other export promotion organisations.

“The meeting was for stocktaking to understand what exactly is happening and the issues they are facing,” commerce secretary Sunil Barthwal said.

There has been no reported container shortage as of now but longer time on sea can create availability problems, he said,

Apart from exports the disruption in imports can also create issues going ahead. “Importers are saying that they have an inventory for a month and after that they will start facing issues if the situation does not improve,” Barthwal said.

The secretary said some shipping lines are still using the Suez route and some Indian consignments have also used it. “Some of the ships carrying Indian cargo are also being escorted by warships,” he added.

India has put 4 ships on high seas after a drone attack on Mangalore-bound chemical tanker MV Chem Pluto. The US has also put together a multinational force to secure shipping routes through Suez.

Commerce secretary said India’s exports to the US east coast, Europe and Eastern ports of Latin America use this route.

Sahai said every year $100 billion of Indian exports pass through this route which translated to $9 billion monthly. Even if 25% of the exports are impacted by the problems in the Red Sea it will mean an impact of around $3 billion this year. He said imports would also be impacted.

He said even if attacks on merchant shipping stop it will take up to two months for the situation to completely normalise. Around 60 ships pass the Suez Daily and in the previous blockade by breakdown of ship Ever Given for six days in 2021 much time was taken for getting the situation back to normal.

Sahai said if the crisis continues longer than exports if low value and high volume products – particularly commodities – would become uncompetitive Buyer may not take the additional costs of freight and resort to buying from sources closer home.

Since mid-November, Houthi rebels, who control large parts of Yemen, have been targeting commercial ships traversing through the lower Red Sea to show their solidarity with Gaza and protest against Israel’s force projections in the region.