One of the most important commerce routes in the world has been forced to be avoided by shippers due to Houthi strikes on the Red Sea.
India’s New Delhi Due to its increased cost, typical purchasers in the Middle East, the US, and Europe are no longer as interested in purchasing India’s Basmati, an aromatic long-grain rice. The shortest and most effective commercial route for ships traveling from Asia to Europe is the Red Sea, where tensions are on the rise.
The Houthis, who are backed by Iran and are based in Yemen, have attacked commercial ships traveling through the Red Sea, forcing merchants to steer clear of one of the most important commerce routes in the world.
The voyage has been extended by more than 3,500 nautical miles (6,500 km) and about a half-month of sailing time on the longer, alternate route around the southern tip of Africa, which has resulted in a major increase in shipping costs.
A portion of the inventory is stored at other ports or processing facilities, and some of the stock is currently being sold on the domestic market, which has caused the local market’s prices to drop by roughly 8%.
Over 4.5 million tons of basmati rice are exported from India each year, making it the largest rice exporter in the world. Through the Red Sea, around 35 percent of the 7.5 million tonnes of production are carried to North America, Europe, North Africa, and the Middle East.
Setia stated, “Buyers are hesitant to take at higher prices.” “There are some exports, but things aren’t doing so well in business. Higher logistical costs are causing us to lose money.
Similar to Basmati, unrest in the Red Sea is obstructing shipments of tea-related commodities.
In light of rising freight costs, an increase in insurance premiums, a scarcity of containers, and longer transit times, exporting basmati rice from India has become more difficult for shippers, according to Vijay Kumar Setia, director of Chaman Lal Setia Exports Ltd. and a former president of the All India Rice Exporters’ of India.
Similar to the Basmati, the unrest in the Red Sea is causing delays in the shipping of Indian commodities, including grapes, tea, spices, and buffalo meat, which is costing exporters money. Similarly, there is a chance that consumer prices may increase as a result of the delays in the entry of electronic goods, sunflower oil, industrial parts, and fertilizers into India. This has sparked worries that the turmoil will prevent a decline in food inflation and cause trade contraction and bottlenecks in the supply chain.
India’s trade with Europe, North America, North Africa, and the Middle East is mostly dependent on the Red Sea route via the Suez Canal. These areas supplied roughly 30% of India’s 17 trillion rupee imports and 50% of its 18 trillion rupee exports ($217 billion).
According to CRISIL Ratings, in the fiscal year that concluded in March 2023, these regions constituted over half of India’s 18 trillion rupees ($217 billion) in exports and roughly thirty percent of its 17 trillion rupees ($205 billion) in imports.
There is now a 21–28 day delay in shipments. According to Sachin Chaturvedi, the director-general of the Research and Information System for Developing Countries, a think group located in New Delhi, the crisis might cost the nation more than $30 billion in exports for the fiscal year that ends in March, hurting $451 billion of exports a year ago by roughly 6.8 percent.
Since November, the Houthi rebels have been attacking cargo ships in the Red Sea with missiles and drones, claiming that their operations are a reaction to Israel’s offensive in Gaza. The Houthi attacks have continued despite US-led coalition retaliatory bombings intended to facilitate the safe passage of ships.
Costs of shipping increase
The maritime sector has temporarily halted passage via the Suez Canal in order to reduce risk. According to International Monetary Fund PortWatch data, the average number of tankers and cargo ships passing through the Suez Canal had decreased by almost 46% over the course of two months, ending on January 28. In contrast, the number of excursions around the Cape of Good Hope had increased by 32%.
The cost of shipping has gone up in the meanwhile. Drewry’s World Container Index states that the typical cost of shipping a 40-foot
Once the government provides export and import statistics for January, which is expected around mid-February, official estimates of the impact on commerce in India will become available.
The Houthi rebels have started attacking targets with missiles and drones.
The cost of shipping has gone up in the meanwhile. The average cost of shipping a 40-foot (12-meter) container on a cargo ship increased 161% to $3,964 on January 25 from $1,521 on December 14, per Drewry’s World Container Index.
India has expressed alarm over the disruption. Approximately six ships with Indian sailors on board or traveling toward India have allegedly been assaulted by Houthis or taken over by armed pirates. In retaliation, India has sent out over a dozen vessels to strengthen its naval presence in the Arabian Sea.
But according to Ajay Sahai, director-general of the Federation of Indian Export Organizations, an organization founded by India’s Ministry of Commerce and Industry, the level of fear is so great that roughly 25% of outbound shipments passing through the Red Sea have been held back and roughly 95% of cargo ships from India have had their routes changed to pass through the Cape of Good Hope.
Costlier imports and negative exports
Even though India imports 80% of its crude oil requirements, the Red Sea remains a vital route for oil exports. Nevertheless, there is no interruption in the supply of oil.
According to S&P Global, Russian warships transporting crude oil across the Red Sea on their way to India are not diverted, in contrast to other industries.
However, sunflower oil has become scarce for India, which is the largest importer of the vegetable oil worldwide. According to Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil brokerage, freight costs have climbed by 35% and transit times have increased by 15 days as a result of the majority of vessels from Russia and Ukraine being redirected through the Cape of Good Hope. According to him, customers have paid a portion of the increased expenses.
Mansukh Mandaviya, the minister of chemicals and fertilisers, told reporters that similar delays had occurred in the shipments of fertilisers and that the cost of logistics had increased. He also added that India will not face a shortage of fertilisers, which are essential for the nation’s food security because sufficient stockpiles exist.
However, the crisis is harming exports of buffalo meat. One of the main suppliers of buffalo meat to the global market is India. Roughly 60% of the nation’s exports pass across the Red Sea on their way to Russia and North Africa.
According to Fauzan Alavi, a spokesman for the All India Meat and Livestock Exporters Association, freight costs have increased threefold, and shipments are experiencing delays of two to three weeks.
According to P K Bhattacharjee, secretary-general of the Tea Association of India, logistics costs have increased by at least 60% and transit times have doubled, which has resulted in significant losses for tea exports.
“We anticipate that the Red Sea crisis will persist for a considerable amount of time,” stated Sahai, who is affiliated with the Federation of Indian Export Organizations. “If this occurs, there will be more disruptions to the supply chain and a delay in controlling inflation.”
An interministerial group has been established by the government to oversee the problem.