Indian exporters are staring at a surge in shipping costs as freight lines are forced to avoid the Suez Canal and take a longer route around Africa to reach the West following tensions in the Red Sea.
The alternate route around the Cape of Good Hope could increase shipping time between Mundra and Rotterdam by a third, experts said, adding that freight rates are likely to go up steeply.
Leading global shipper Maersk on Tuesday said all its vessels bound for the Red Sea are being re-routed for safety reasons. All major global shipping lines paused their Suez Canal-bound vessels last week following Houthi militia attacks on freight ships in the region.
“We have faith that a solution enabling a return to using the Suez Canal and transiting through the Red Sea and Gulf of Aden will be introduced in the near future, but at this time it remains difficult to determine exactly when this will be,” Maersk said in a client advisory.
An estimated $200 billion worth of Indian exports flow every year through the key waterway connecting the Mediterranean and the Red Sea. With the Suez Canal becoming unusable, India’s exports of manufactured goods including automotive parts, agricultural products, chemicals, textile and ready-made garments and pharmaceutical products are likely to be affected.
“The industry will–and have already started to–experience an uptick in freight and insurance costs and surcharges, higher fuel costs, placing additional financial strain on businesses involved in India’s import and export activities,” said Christian Roeloffs, co-founder and CEO of Container xChange, an online container logistics platform.
In anticipation of these delays, there can be an increase in demand for containers in India as shippers look to mitigate the impact of this situation, he said, adding that this can push up container prices too.
The delays could also lead to goods piling up at key ports of origin in the East, experts said. If the delays persist, shipping lines may start skipping lower-priority Indian ports to make up for lost time as well as to prioritise shipments from key exporters like China, experts further said.
“Shipping lines are going to charge a lot,” said Khalid Khan, a board member of Federation of Indian Export Organisations. “Some people are already hearing an almost 100-150% increase in freight rates.”
The situation is a reminder of two years ago when global trade was disrupted after the key waterway connecting the Mediterranean and the Red Sea was blocked by a wayward container ship. While that episode was resolved within days, it highlighted the criticality of shipping to the modern economy as well as the vulnerability of key trade routes.