By Alvin Ho
Geopolitical tensions in the Red Sea have shaken up global trade. Attacks by the Houthis on ships led to US and allied responses, causing chaos in maritime trade. India’s small and medium-sized businesses, especially exporters, are bearing the worst of it. This situation reveals the vulnerability of Indian exporters and highlights the urgency for creative solutions and government aid to help them navigate the evolving global market. Let’s closely examine the main problems and see how exporters can tackle them with new ideas and support from the government.
Challenges faced by Indian small businesses
Logistical disruptions and delayed shipments
One of the primary concerns for Indian exporters is the delayed and uncertain shipment schedules. The closure of key shipping lanes and the need to reroute cargo have led to significant delays and made it increasingly difficult for exporters to meet their delivery commitments. This, in turn, is straining their relationships with international buyers, who are growing increasingly frustrated with the unpredictability of the supply chain.
Strain on working capital and bargaining power
The disruptions have put a significant strain on the working capital of Indian exporters, particularly the smaller players. Delayed shipments caused stress on SME exporters to look for alternative methods such as air freight, which is more expensive, leading to more strains on working capital. With delayed payments from overseas buyers and the need to find alternative, and often more expensive shipping routes, many SMEs are struggling to maintain their cash flow.
This financial stress can have far-reaching consequences, from their ability to fulfil orders to their overall business viability. Furthermore, the Red Sea crisis has highlighted the vulnerability of smaller Indian exporters when it comes to their relationships with international buyers. With less negotiating power, these SMEs are often forced to accept extended payment terms or even concessions that further strain their working capital.
Limited access to global logistics networks and supply chain transparency
SME exporters in India are facing an uphill battle when it comes to accessing the global logistics network. With the major shipping routes in the Red Sea region disrupted these smaller players have limited options for rerouting their cargo. This lack of flexibility and access to alternative routes puts them at a significant disadvantage compared to their larger counterparts, who may have more resources and bargaining power. Additionally, the lack of supply chain transparency makes it challenging for smaller Indian exporters to mitigate the risks associated with their overseas buyers, further worsening their vulnerability during the crisis.
Technological solutions and Government interventions as a lifeline for exporters
Amidst these daunting challenges, technology and government support can provide a lifeline for Indian exporters, particularly the smaller players. For instance, insight-based supply chain finance platforms can offer innovative solutions to help SMEs access working capital support and gain insights into the risk profiles of their international buyers. They are also working to profile Indian exporters, particularly SMEs, in front of major brands and retailers in the US and Europe, to generate incremental opportunities and leads for these businesses. By leveraging these platforms, exporters can better deal with the turbulent waters of the Red Sea crisis and optimize their cash flow management.
The Indian government has also taken proactive measures to support the export sector during this crisis. The Union Commerce and Industry Minister recently announced the establishment of a dedicated task force under the Department of Commerce to identify, categorize, and develop tailored strategies for resolving non-tariff barriers faced by exporters. Additionally, the government is providing financial assistance through schemes like the Export Credit Guarantee Corporation (ECGC), which offers insurance against export risks. Moreover, collaborative efforts with international partners are underway to address security concerns in the Red Sea and encourage shipping companies to resume normal operations.
Conclusion
As the Red Sea crisis continues to unfold, Indian exporters must remain vigilant and adaptable in the face of evolving challenges. By harnessing the power of technology, insight-based supply chain finance platforms, and government support, exporters can overcome the hurdles posed by disrupted shipping routes and volatile market conditions.
Moreover, by strengthening collaboration and innovation, Indian exporters can position themselves for long-term success in a rapidly changing global landscape. As we lead through these turbulent waters, we must embrace resilience, ingenuity, and cooperation to chart a course towards a brighter future for Indian exporters.
Alvin Ho is the President of Air8. Views are personal.