Indian exporters and importers share the load in Red Sea shipping challenges

Amidst the escalating Red Sea crisis causing a surge in shipping expenses, Indian exporters are finding relief through renegotiating rates with their buyers, as stated by a government official.

The Drewry World Container Index, a gauge of container freight rates, reached $3,786 per 40-foot container in the week ending February 8, marking a 90% increase from the same week last year and a 167% rise compared to the average 2019 rates. Despite this, the official notes that in newly formed contracts, Indian exporters are successfully mitigating the impact of higher shipping costs.

The official explains that during the initial 15 days of the crisis, exporters bore the brunt of the impact as commitments had to be shipped regardless of cost changes. However, over time, renegotiated rates are distributing the increase between exporters and importers, eventually passed on to consumers. Israr Ahmed, President (Officiate) of the Federation of Indian Export Organisations, mentions that exporters have accepted the new rates and are adapting to increased freight costs.

Due to persistent attacks on commercial vessels in the Red Sea route, freight companies are opting for longer routes around Africa or waiting at nearby ports for safe passage through the Suez Canal. Ahmed highlights an overall 50 to 100 percent increase in shipping costs for some containers, but given the steeper costs during the COVID-19 pandemic, exporters can absorb the impact of the Red Sea crisis. BMI, a Fitch Solutions company, reports that the overall increase in shipping rates is less pronounced than during the peak of the pandemic in 2020-2022.

India’s exports to Europe through the Suez Canal encompass food products, apparel, and electronics, with imports mainly consisting of crude oil. Concerns arise in New Delhi about the potential impact of attacks on cargo ships on agricultural exports to Europe. Ahmed notes that people are exploring alternatives, such as shipping to the US West Coast and trucking down to the East Coast, or circumventing the Cape of Good Hope. He anticipates gradual price reductions as alternative routes become more prevalent.

Following the Israel-Hamas war in October, periodic attacks on commercial vessels in the Red Sea by Yemen-backed Houthi rebels have persisted since late November. The United Nations Conference on Trade and Development reveals that the Suez Canal handled 12 to 15 percent of global trade in 2023, estimating a 42 percent decrease in trade volumes through the canal over the past two months. J.P. Morgan Research estimates that 30 percent of global container trade passes through the Suez Canal, emphasizing the significant disruption caused by the Red Sea shipping crisis on global supply chains.

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