4 min readNew DelhiJan 7, 2024 08:08 AM IST
First published on: Jan 7, 2024 at 03:50 AM IST
Freight rates to Europe — India’s second largest export destination — via the Red Sea region have almost doubled due to rising attacks along the crucial shipping route, a senior government official told The Indian Express.
This comes after global shipping giant Maersk on Friday decided to extend its diversion of vessels from the Red Sea for the “foreseeable” future, sparking fears of a sharp rise in freight and insurance cost for Indian products.
“Multiple things are getting mixed here. Normally, the freight rates range from $500 to $600 through this route to Europe. But the peak season which is between January to March goes up to $1,500. Exporters have informed that this rate has gone to $2,000. Over and above there (war risk) surcharges being added which is taking the freight rates to nearly $3,000,” the official said.
The Indian Express had earlier reported that exports of low- value products such as textile and agriculture could get hit as exporters are holding back the consignments due to rising freight cost. This comes at a time when Indian textile exports have been on the decline due to weak demand in the West.
Meanwhile, the Global Trade Research Initiative (GTRI) said that New Delhi must prepare for long term shipping disruptions at the Bab-el-Mandeb Strait.
“India’s approach should include looking for alternative trade routes that bypass the Bab-el-Mandeb strait, negotiating contracts for oil and liquified natural gas with alternate suppliers, offering humanitarian aid to Yemen, negotiating freight with international shipping companies, and paying part of increased insurance expenses,” GTRI said.
India, heavily reliant on the Bab-el-Mandeb Strait for crude oil and LNG imports and trade with key regions, faces substantial economic and security risks from any disruption in this area, the think tank said, stating that approximately 65 per cent of India’s crude oil imports in FY 2022-23, valued at $105 billion, from countries like Iraq, Saudi Arabia, and others, likely passed through the Suez Canal.
“For overall merchandise trade with Europe and North Africa, about 50 per cent of imports and 60 per cent of exports, totaling $113 billion, might have used this route. The conflict has necessitated India to consider alternative routes, such as going around Arica via the Cape of Good Hope, which could lead to increased energy costs. India might look to diversify its sources of crude oil and LNG, and explore alternative trade routes to reduce dependency on the conflict-prone Red Sea passage,” the report said.
This conflict is leading to increased shipping costs (40-60 per cent) and delays due to rerouting (upto 20 days more) , higher insurance premiums(15-20 per cent), and potential cargo loss from piracy and attacks, it added.
Asia-to-North Europe rates more than doubled to above $4,000 per 40-foot container this week, with Asia-to-Mediterranean prices climbing to $5,175, Reuters reported citing Freightos, a booking and payments platform for international freight. Moreover, some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments starting mid-January, and surcharges of $500 to as much as $2,700 per container could make all-in prices even higher, Judah Levine, Freightos’ head of research, as per the Reuters report.
While rates have spiked, they remain far below 2021’s pandemic-fueled record highs of $14,000 per 40-foot container for Asia to North Europe and the Mediterranean and $22,000 for Asia to North America’s East Coast.
While rates have spiked, they remain far below 2021’s pandemic-fueled record highs of $14,000 per 40-foot container for Asia to North Europe and the Mediterranean and $22,000 for Asia to North America’s East Coast.
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