Indian exporters are grappling with increased shipping costs as freight lines opt to bypass the Suez Canal due to rising tensions in the Red Sea. An estimated $200 billion worth of Indian exports annually traverse the Suez Canal, but recent militia attacks have rendered the waterway unusable, impacting the country’s exports of manufactured goods such as automotive parts, agricultural products, chemicals, textiles, readymade garments, and pharmaceuticals.
Major global shipping lines, including industry leader Maersk, have redirected their vessels away from the Red Sea for safety reasons. The alternative route around the Cape of Good Hope, though longer, is considered a safer option. This rerouting is expected to extend shipping time between Mundra and Rotterdam by a third, leading to potential increases in freight rates.
Maersk expressed optimism about a future solution to resume using the Suez Canal, but the timeline remains uncertain. The disruption is causing concerns about delays and additional costs for Indian exporters. Shashi Kiran Shetty, founder and chairman of Allcargo Logistics, highlighted the potential impact on trade, emphasizing that the decision of shipping lines to avoid the Red Sea might lead to disruptions, delays, and incremental costs. With the Suez Canal currently inaccessible, there are implications for the macroeconomic environment. While freight rates may not see a substantial increase due to limited capacity, longer transit times are expected to affect sailing schedules and service reliability. Even if shipping lines decide to revert to the Red Sea, there could be an increase in war surcharge, contributing to higher costs.
The article underscores the significance of the Suez Canal for Indian exports and the challenges posed by the current geopolitical situation. As exporters navigate these uncertainties, the potential for heightened costs and delays in the supply chain underscores the broader impact of global events on regional economies.