Indian exporters holding consignments due to increasing shipping costs amid Red Sea crisis

Amid the Red Sea crisis, Indian exporters are holding their consignments due to increasing shipping costs. Commerce Secretary Sunil Barthwal has said that the government provided a cushion to exporters by asking the ECGC not to increase the export credit interest rates. State-owned ECGC is an export promotion organisation, seeking to improve the competitiveness of Indian exports by providing them with credit insurance covers. He added ‘To that extent, we are going to give that kind of comfort to our exporters’. 

He further said 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)’. The crisis is impacting shipping lines and containers and due to this, freight rates are high. He noted ‘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’. 

The situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, has escalated due to recent attacks by Yemen-based Houthi militants. Due to these attacks, the shippers are taking consignments through the Cape of Good Hope, resulting in delays of almost 14-20 days and also higher freight and insurance costs. The secretary said that export promotion councils have been asked to immediately brief the government on any major issue faced by them but so far they have not given any ‘serious’ feedback. 

During December-January, the exporters normally face higher congestion surcharge due increased traffic on seas but this time the increase has been much more. On January 17 an inter-ministerial meeting has been called on the Red Sea issue that will see the participation of the Ministry of External Affairs, Commerce, Shipping, Defence and Department of Financial Services. Post that, another meeting with the exporters has been planned. 

Around 80 per cent of India’s merchandise trade with Europe passes through the Red Sea and substantial trade with the US also takes this route. Both these geographies account for 34 per cent of the country’s total exports. The Red Sea strait is vital for 30 per cent of global container traffic and 12 per cent of world trade. About 95 per cent of the vessels have rerouted around Cape of Good Hope adding 4,000-6,000 nautical miles and 14-20 days to journeys.