The challenges posed by the West Asia war in terms of rising freight costs and other logistics challenges have dampened the initial euphoria over India-UK Comprehensive Economic and Trade Agreement (CETA) that came into force on July 15.
While challenges and uncertainty loom, exporters remain optimistic about the UK market’s long-term potential, and some have started new initiatives to circumvent the difficulties. The immediate challenges remain formidable for sectors like engineering, which account for 25-30% of total exports to the UK.
On Friday the cost of a 40-foot container from Mumbai to Felixstowe was ruling at $ 7200, up from $ 1800 before the start of hostilities in the region in March. Felixstowe is the largest and busiest container port in the UK. Apart from high rates, the challenge of obtaining containers as journey times increase by 14-21 days through the Cape of Good Hope with ships avoiding Red Sea routes. The engineering sector also faces quotas on products of iron and steel. While recent relaxations cover existing exports, future clarity would be needed, exporters said.
Other than challenges emanating from the West Asia war, some exporters have expressed concerns over the subdued consumer demand in the UK which limits the opportunity in the short term. Sales volumes in UK have remained weak and below pre-pandemic levels
Duty Cuts
Despite the challenges that existing exporters might be facing, companies that have so far been out of the UK market have started test runs. “An Indian mobile phone brand sent out its first consignment to the UK to test the market post CETA,” founder and Chief Executive Officer of (CEO) of logistics platform Lexship Padmanabhan Babu said.
Some like CTA Apparels which export largely to the European Markets now are looking at the UK market also. “We had worked with leading UK buyers in the past. We will be proactively reconnecting with these partners while eagerly looking forward to new enquiries from UK retailers and brands,” Chairman of the company Mukesh Kansal said.
Enquiries from the UK – which is already the third largest market for Indian apparel after US and UAE – have increased as duties have come form from around 10% to nil, secretary general of Apparel Export Promotion Council Mithileshwar Thakur said. Another enabler for the industry is the easier compliance mechanism for Rules of Origin (ROO) that rely on self-certification by exporters. The apparel exports to the UK can double in the next two to three years from $ 1.4 billion at present, Thakur added.
Gems and Jewellery sector exporters are witnessing stronger interest from UK buyers, faster commercial conversations and renewed confidence, Chairman of Gems and Jewellery Export Promotion Council Kirit Bhansali said. “ In the very first week of implementation, gem and jewellery exports to the UK exceeded US$10 million.” The council had started outreach activities in the UK even prior to the agreement coming into force. The exports of the sector to the UK after zero duties is expected to touch $ 2.5 billion from $ 754 million.
Mixed Prospects
Due to stagnant consumer demand and competition a leading leather and footwear exporter said the CETA will help the shipments but it “does not excite”. Before CETA, the UK charged between 4.5% to 5% tariffs on Indian exports which have now come down to zero. The zero duty benefit was already available to competitors like Bangladesh and Vietnam. Even in non-leather footwear where import duties are coming down from 11.9%-16% to zero Indian manufacturers are not that competitive.
