How Houthi attacks in Red Sea are affecting India’s exports

The Houthi attacks on ships in the Red Sea have already disrupted international commerce. It is estimated that the key route comprises around 15 per cent of the world’s shipping traffic. But did you know that the attacks have also had an impact on India? External Affairs Minister S Jaishankar on Wednesday told News18 the attacks would affect India’s energy and economic interests and that the problem needs to be ‘speedily addressed.’ But how have the attacks impacted India? And what did Jaishankar say? Let’s take a closer look: How have the attacks impacted India? First, it is important to note that the Red Sea plays an important role when it comes to India.

The Red Sea connects the Indian Ocean to the Mediterranean via the Suez Canal.

Around 80 per cent of India’s goods trade with Europe, estimated at nearly $14 billion a month, normally passes via the Red Sea, according to government estimates. India also sends goods via the Red Sea to the US’ East Coast, Africa and West Asia, as per The Times of India. India exports steel, engineering goods, textiles, chemicals, vehicles, and agro-products through this route. US and Europe account for 34 per cent of the country’s total exports. Exporters have said that freight rates have skyrocketed by up to 600 per cent due to the Red Sea crisis. Major shipping lines have stopped or temporarily halted Red Sea operations, including Maersk, MSC, Hapag Lloyd . The cost of a 24-foot shipping container from India to Europe, the eastern cost of America and the UK had risen to $1,500 from $600 before the Red Sea attacks, according to four exporters including the head of an export association. “Our profit margins have been wiped out as the shipping costs have gone up,” Arun Kumar Garodia, chairman, Engineering Export Promotion Council of India (EEPC) said, noting most of the buyers were not ready to revise prices. He said Indian exports worth at least $10 billion would be hit in the fiscal year to March 2024 due to the rising shipping costs and delay in delivery of orders. Shipping companies have threatened to raise freight costs further later this week, Garodia said. Exporters also said about a quarter of this month’s exports are held up due to delays in shipping schedules. [caption id=“attachment_13624332” align=“alignnone” width=“640”] A Houthi fighter stands on the Galaxy Leader cargo ship in the Red Sea in this photo released 20 November, 2023. AP[/caption] “The sailing of most of the ships has been impacted and generally postponed by 2-3 weeks as the incoming ships, with longer routes, are delayed,” Satya Srinivas, a senior Indian trade ministry official said on Monday. Some recent consignments had been put on hold, although December exports, estimated at $38.45 billion, were not impacted by the Red Sea crisis, he said. The freight hike issue was flagged in the meeting of the Board of Trade (BoT) chaired by Commerce and Industry Minister Piyush Goyal on Tuesday, Federation of Indian Export Organisations (FIEO) director general Ajay Sahai said. He said “It is a serious issue” and the problem will hurt the global demand for goods besides pushing inflation in different countries. Shippers are now routing consignments through the Cape of Good Hope, encircling Africa –resulting in delays of almost 14-20 days and also higher freight and insurance costs. Exporters said 95 per cent of vessels had rerouted around the Cape of Good Hope.

This added 4,000 to 6,000 nautical miles to the round trip.

The freight from Kolkata to Rotterdam has increased by eight times –from $500 to $4,000. “These incidents in the Red Sea are a cause for concern for the shipping industry. The Europe-bound containers of cargo companies are taking the Cape of Good Hope route instead of the Suez Canal after these incidents on sea came to light. However, this re-routing of the shipping assets has led to a tripling of the transportation cost,” RBB Ship Chartering CEO Raajesh Bhojwani told ANI. “Several insurance companies have jacked up premiums by 100 times for the ships sailing in the Red Sea while some have stopped offering an insurance cover altogether. If ships use the Cape of Good Hope route, their journey time increases by 8-10 days, leading to excessive use of fuel. The prevailing situation has put Indian exporters at risk of becoming non-competitive in other market segments,” Bhojwani further warned. Moneycontrol earlier reported that around 65 per cent of India’s shipments to Europe are being sent via Good Hope. “Most exporters are looking to avoid massive premiums on insurance charges to travel through the Red Sea and the Suez Canal,” an executive from a global shipping major told the outlet. Another official added that container prices at major Indian ports have surpassed the $2,500 per TEU (twenty-foot equivalent unit) mark. The official added that insurance rates for exports to Europe are spiking massively no matter what route is taken when travelling from Europe to India. Indian exporters have now begun holding their consignments due to increasing shipping costs amid the Red Sea crisis. “Consignment has been put on hold due to high freight and surcharges (as per EPCs). The sailing of most of the ships have been impacted and generally postponed by 2-3 weeks as the incoming ships, with longer routes, are delayed. As of now, container availability has not been seen as an issue as adequate empties are available. However, the combined impact of higher freight costs, insurance premiums, and longer transit times could make imported goods significantly more expensive,” the commerce ministry said as per Indian Express. Fortune quoted a study from the New Delhi-based think-tank Research and Information System for Developing Countries as saying India’s exports could shrink by around $30 billion due to this crisis. That would be a 6.7 per cent drop from $451 billion last fiscal. “The crisis in the Red Sea would indeed impact India’s trade and may lead to further contraction,” Sachin Chaturvedi, the director general of the think-tank told the outlet. Fortune quoted Madhavi Arora, a lead economist with Emkay Global Financial Services Ltd as saying the crisis could lower profit margins for Indian oil and auto companies. But Aurora warned that inflation might be a bigger worry. “Higher global freight and insurance rates, possible upside risk to oil and global trade and re-emergence of potential supply chain would mean cost push inflation pressures,” she wrote in a December note. What did S Jaishankar say? Jaishankar, speaking to News18 on Wednesday, said “We have multiple phenomena out there… we had piracy, resurfacing of piracy. That’s a different problem. The drone strikes and missile strikes are different problems… so both factors are important but the second one is more. It (the issue) has started to divert shipping and that has its cost”. Meanwhile, the Centre is responding to the crisis. As per Indian Express, the government has requested the Export Credit Guarantee Corporation (ECGC) not hike insurance premiums. Moneycontrol reported that New Delhi is considering several measures to alleviate the distress of exporters including subsidies.

India is also in touch with the coalition led by the US to facilitate the safe passage of commercial ships.

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The Centre has also asked exporters to consider alternative destinations such as Australia for the time being. “Several products like textiles and agricultural produce being transported to Europe are also transported to Southeast Asian countries and the Middle East from India. Exporters have been asked to study these markets as alternative export destinations,” an official told Moneycontrol. Commerce Secretary Sunil Barthwal said that the government has provided a cushion to exporters by asking the ECGC not to increase the export credit interest rates. “The cost is increasing due to the Red Sea disruption. But ultimately it will depend on demand. The US exports are also through the Suez route. Transport charges are surging. An additional congestion surcharge is also being charged. But if the demand is robust the shipments will go. If they are not time sensitive products they will move. It is a global issue. Whole of commoditty moves from the eastern to the western part through the Red Sea route,” commerce secretary Sunil Barthwal was quoted as saying by Indian Express. Indian exporters have suggested that the Indian government begin its own shipping line of global repute. According to the FIEO, India’s outward remittance on transport services is increasing with rising exports. “We remitted over $80 billion as transport service charges in 2021. As the country moves towards the goal of $1 trillion in exports, this will touch USD 200 billion by 2030. A 25 per cent share by the Indian Shipping Line can save $50 billion year on year basis,” he added. The Indian private sector may be engaged to develop such shipping lines as this will also reduce arm twisting by foreign shipping lines, he said. State-owned ECGC is an export promotion organisation, seeking to improve the competitiveness of Indian exports by providing them with credit insurance covers. “To that extent, we are going to give that kind of comfort to our exporters,” Commerce Secretary Sunil Barthwal told reporters here. He added that if the demand is robust in Western countries, Indian exports will grow. India’s competitor nations are also facing higher costs due to the crisis. “Therefore they are as less competitive as we are. It fairly balances everybody. So ultimately it (exports growth) will depend upon demand over there (in the Western world),” he said. The crisis is impacting shipping lines and containers and due to this, freight rates are high. “It is a global issue, it is not an India-specific issue. A lot of commodities move from the eastern side to the western from the Suez Canal. Everybody is concerned about it, looking into it and trying to help each other. So let us see how this global cooperation works out,” he said. With inputs from agencies