Red Sea woes: Exporters seek increased credit as freight rates jump 300%
- Indian exporters have asked the Central Government to help facilitate more credit as freight rates due to disruptions in the Red Sea.
Key Highlights
- Increasing attacks on ships sailing in the Red Sea Region has forced exporters to go for longer route past the Cape of Good Hope
- This has stretched delivery time by 15 to 20 days.
- The freight rates have jumped nearly 300 per cent due to the disruption in the Red Sea route.
- This has also increased the transit cost substantially because of incremental freight rates and insurance premium.
- Federation of Indian Export Organisations (FIEO) is keeping close look over the observations.
Impact on Indian Export Goods
- Indian companies use the Red Sea route through the Suez Canal to trade with Europe, North America, North Africa, and parts of the west Asia.
- As per CRISIL estimates, these regions accounted for 50 per cent of India’s exports worth Rs 18 lakh crore and 30 per cent of imports worth Rs 17 lakh crore in 2022-23.
- Marine foods –predominantly shrimp and prawn could also see a significant impact
- As 80-90 per cent of the production is exported, more than half of it through the Red Sea.
- Their perishable nature and lean margins make exporters vulnerable to rising freight cost and competitive pressure from Latin American suppliers.
- This is forcing global shipping lines to take longer trade routes, which is ultimately affecting exports of low value items such as Basmati rice.
- 30-35% of production of Basmati Rice is shipped throughthe Red Sea.
- There is another challenge to ensure smooth trade payments.
Prelims Takeaway
- Cape of Good Hope
- Red Sea