Indian exporters are yet to see any large-scale rejection of export consignments or demand to re-negotiate contracts as a result of the Red Sea blockade, but are increasingly worried that any inordinate delay in the resolution of the crisis might seriously jeopardise their business.
Exporters of textiles and apparel have already started witnessing an increase in transit time in some cases, and rise in freight, but still has the buyers’ confidence intact. In most cases, it is the buyer who pays for transport, sources from the exporting community say.
Sensing delays, some of the buyers are opting to take cargo by air specially of seasonal fashion items because any delay will mean missed sales, managing director of Joyti Apparels and past chairman of Apparel Export Promotion Council said.
Some buyers from US, Canada and Mexico have opted to take delivery by sea. According to exporters the use of longer routes via Cape of Good Hope in Africa to avoid the Red Sea and Suez will add 14 days to the travel time and higher freight. Rates to Europe and US for a 20-feet container have increased by an average of $1500 from $500 billion since the crisis erupted , managing director of Corona Steel Industries Arun Kumar Garodia said.
The freight rates, however, are still nowhere near what they were during Covid 19 peak when a 40 feet container to US was hired for $18,000 to $20,000, CEO of Arvind Footwear R K Jalan said. The peak of shipping rates was scaled in September 2021. Since then they have been in retreat till the merchant shipping came under fire.
Japan said prior to attacks on merchant shipping in the Red Sea prices of 40-foot containers were $1400-1800 but now they have risen to $2400 to $2600. The increase in insurance costs for sea freight has also not seen a big jump.
Ships are still taking the Red Sea route and crossing the Suez Canal only a few some shipping lines are completely avoiding the route. According to data 12% of the global trade passes through Suez.
While overseas buyers face higher transport costs, Indian exporter are still to face demand for renegotiation of contracts or discounts. “New business enquiries are flowing in at normal pace,” Garodia who is also the chairman of Engineering Export Promotion Council said. No exporter reported shortage of containers, which was expected as more time is spent on the seas.
According to a latest report by Drewry, an independent maritime research consultancy 822 ships of the 6100 present globally or 10 million TEU capacity out of the total 28 million TEU can be potentially impacted by the Red Sea crisis which translated to 30% of total capacity. TEU is a measure of volume in units of 20 foot long containers.
It also said that travel by alternative routes have the capacity to increase the distance on some routes by up to 57%. It, however, said that there is enough capacity in global shipping to handle such a disruption and things will further improve after Chinese new year in February.
The disruption in shipping is impacting exporters in some other ways. Matrix Clothing’s managing director Gautam Nair said some of the company’s machines in transit were to turn back from Red Sea twice and would now be landing after a delay of a few weeks.
Jalan said while value-added exports can weather the shipping cost hikes, it might impact export of bulk commodities where every cent counts. A senior official of an aluminium exporter from India said on the condition of anonymity that the company has not seen any impact due to the Red Sea crisis as their shipping companies have already altered their routes in a timely manner. The company also said that it continues to monitor the situation closely.
Another big item of commodity export from India – petroleum products – has also sustained well. This exports depends largely on imports of crude. India’s crude imports from Russia remain unaffected so far. In the event of an escalation in Red Sea attacks, no decrease in Russian volume is anticipated. However, there is a potential expectation that US/ Latin American crude volumes may opt for the Cape of Good Hope shipping route, according to S&P Global.
In the case of Basmati Rice, only bulk agriculture commodity whose export is allowed, exporters said that because of global demand for the basmati rice, at present there are no ‘renegotiations’ on the prices especially Basmati shipped to middle east countries. Basmati rice shipped to Europe although smaller in quantity has been hit. “But if the red sea crisis is not dealt with, the rice exports may get hampered in the coming months,” an exporter said.
“The rice exports have slowed down and the freight cost for Basmati rice exports to countries around red seas has been hiked significantly,” Vijay Setia, managing director, Chaman Lal Setia Exports, a leading rice exporter, said.
Another rice exporter said that freight cost of rice consignments headed for Europe currently has been doubled to $ 4000 for 20 tonne containers from $ 2000 per container.
Gems and Jewellery exports which were $37 billion last year out of total exports of $451 billion are shielded from the shipping disruptions. “In my view, the impact of the geo-political situations escalating in the Red Sea is to be minimal on the diamond export from India, if it affects the business at all. The reason being that diamonds and jewellery fall under precious cargo and the export of these items is done through the air route,” managing director of Indian arm of Rosy Blue Russel Mehta said.
While the world watches closely at developments in West Asia, the government is in regular touch with exporters and shippers to keep an eye on the evolving situation. Last week the commerce ministry held a detailed meeting with export associations and shippers where other relevant government departments were also represented.
(With inputs by Sandip Das and Arunima Bharadwaj in Delhi and Abhinay Kumar in Ahmedabad)