How has Red Sea trouble impacted India?
- A series of attacks by Houthi militia in Yemen on cargo ships in the Red Sea since November has disrupted the quickest marine route linking Asia to Europe through the Suez Canal.
- This has compelled ships to take a longer route around the Cape of Good Hope.
- It has compounded the woes of global trade that was already grappling with post-pandemic challenges and economic slowdown.
Impact on Indian Trade
- Major cargo shipping lines have abandoned the Red Sea route, rerouting almost 90% of western hemisphere cargo, impacting both inbound and outbound shipments from India.
- The Cape of Good Hope route is longer, costlier and causes delays in deliveries.
- The remaining 10% of Indian import or export cargo is either not moving or using a transit facility.
- Different buyer-seller contracts influence the impact, with
- FOB (free on board) contracts burdening buyers
- CIF (cost, insurance and freight) or C&F (cost and freight) contracts affecting exporters.
- Approximately 20-25% of consignments are being held back, with a significant increase in freight costs affecting low-value, high-volume cargo and perishables.
Impact on India's Imports
- Longer import cycles and costlier imports due to the extended route.
- Increased costs and longer delivery times could contribute to dearer final products, impacting sectors like fuel prices.
- Critical imports are being assessed for potential disruptions.
Response and International Situation
- The UN has condemned Houthi attacks, stating “no cause or grievance” justifies threats to freedom of navigation in the Red Sea.
- The US seeks more support for 'Operation Prosperity Guardian' to keep the sea lanes open and free of threats.
- India is closely monitoring the situation, with the Commerce Secretary engaging in discussions with officials and trade bodies.
Sector-Specific Impact
- Commodities, especially chemicals, plastics and petrochemicals, face the brunt due to thin margins unable to absorb higher freight costs.
- High-value, low-volume commodities may opt for airlifting, but large-volume goods are significantly impacted.
Conclusion
- The disruption in Red Sea shipping routes poses challenges for Indian trade, affecting both exports and imports.
- The prolonged use of the Cape of Good Hope route, coupled with increased freight costs, underscores the need for resilient strategies in the face of evolving geopolitical and maritime security situations.