‘Tripling transportation costs’: Red Sea attacks are spiralling and India is feeling the heat

‘Tripling transportation costs’: Red Sea attacks are spiralling and India is feeling the heat

Yemeni Houthis have stepped up the ante following retaliation by the United States and United Kingdom on the recent Red Sea commercial ship attacks by the Iran-backed rebels. Companies in the West have been feeling the supply chain prick, and now, so are the Indians.

Attacks on commercial ships in the Red Sea began soon after the Israel-Hamas conflict escalated in October. To show support for Hamas militants in their conflict with Israel, the Houthi militants are attacking merchant ships that are passing through Yemen on their way to or from Egypt’s Suez Canal.

Following attacks on vessels by the Houthi militia, companies are being forced to take the safer route through southern Africa, extending shipping time. While it did not impact Indian companies initially, it is now, given the closely woven interlinked nature of global trade.

India, impacted

Given the escalating nature of recent incidents in the Middle East that have threatened global trade, Indian shipping companies are raising concerns. RBB Ship Chartering, a company dealing with ship chartering services, has said that shipping costs have gone up manifold.

« 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, » its CEO Raajesh Bhojwani told news agency ANI.

The Red Sea remains a significant shipping route for India, as goods are traded to the US East Coast, Europe, the Middle East, and Africa through it. Suez Canal is the only waterway which allows direct passage between Europe and Asia and ships must pass through the Red Sea to access it. The other alternative is travelling through Africa, which adds around 30 days in travel time.

A substantial number of commodities, including steel, engineering goods, textiles, chemicals, vehicles, and agro-products, are exported from India to Europe and the West via the Red Sea route.

« 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, » he said.

For India, which has retained its tag of the fastest-growing major economy, global trade hiccups remained a concern in 2023 amid slowing demand. The fragile geopolitical situation in the Middle East further increases the headache for policymakers in New Delhi, with one report claiming that the nation may see $30 billion shaved off its total exports in FY24.

The Research and Information System for Developing Countries-penned report claims that based on an initial assessment, Indian exports could drop by 6.7 per cent this financial year.

US retailer Target felt some disruptions of shipments from India and Pakistan, a big region for apparel manufacturing, news agency Reuters reported citing sources. However, in this case, the effect overall has been “minor.”

India’s role in this tense situation is pertinent given its closeness to Iran, which has backed the Houthi rebels. Following a conversation with US Secretary of State Antony Blinken this week, India’s external affairs minister S Jaishankar is expected to give Tehran a visit on Monday, reports said.

The Commerce Ministry will hold an inter-ministerial meeting next week to ‘strategize measures’ following the trade impact.

Goods supply, chained

Clarkson Research Services Ltd., a unit of the world’s largest ship-broker, reported earlier in January that the number of ships using the Suez Canal is around 44 per cent lower than the average for the first half of December. According to them, in the week leading up to January 3, vessels with a combined gross tonnage of over 2.5 million went through, down from roughly 4 million at the beginning of the month.

The Houthi rebels have resorted to drones and anti-ship missiles, targetting vessels. They even used a helicopter to board and seize an Israeli-owned ship and crew. While they initially threatened to target any vessel bound for or from Israel, they will now reportedly attack any vessel, including container ships and oil tankers, flagged to countries like Norway and Liberia being attacked or drawing missile fire.

Wary of the attacks, major shipping container corporations like Maersk are sending their ships around Africa and Cape of Good Hope, which adds around a week or two to the voyages whilst increasing the cost of shipping, insurance, and fuel, among other costs.

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