Red Sea attacks send shockwaves through Indian exim business; container costs up 400%; freight rates soar

Red Sea attacks send shockwaves through Indian exim business; container costs up 400%; freight rates soar

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With container costs surging by up to 400% and routes diverted around Africa, Indian exports face a double whammy of competitiveness loss and logistical nightmares. Exporters struggle to absorb these dramatic increases, while importers contend with rising costs of imported goods, potentially leading to inflationary pressures and reduced consumer demand.

“While buyers are not ready to increase the price and not ready to share higher freights. movement of cargo has slowed down. Cargo rates for non-Red Sea destinations are also going up because of fewer ships available,” said Vijay Kumar Setia, Director of Chaman Lal Setia Exports Ltd and former president of All India Rice Exporters of India (AIREA).

Price Pinch

Container shipping costs have witnessed a dramatic surge of 30-400% depending on the destination, forcing exporters to either absorb the additional cost or potentially lose competitiveness. Experts highlighted the significant rise in freight charges, with rates jumping from $250 to $1500 for some Middle East routes and $700 to $3500 for Europe.

“From India to the US market, rates have jumped from $1,700 to $4,100, a remarkable 150% increase,” said, Srinath Ramakkrushnan, Co-founder & COO at Zetwerk. “Average container rates have experienced an astonishing 400% surge, rising from $700 to $3,800.”

The overall logistics cost has reached an alarming level at present. “The Drewery Global Index has gone up by over US$1000 in the last 15 days or so, since the crisis. On some of the routes, the freight increase is as high as 300-400%. Besides, the shipping lines have imposed Red Sea /Contingency Surcharge ranging between US$1500 and US$ 3,000 and the Peak Season Surcharge of US$1500,” said Ajay Sahai of Federation of Indian Export Organisations (FIEO).

Rice exports have been severely impacted. “If we look particularly in the Middle East, container costs have seen tremendous fluctuations.

The freight charges of shipments which were previously around $250 have certainly surged to $1250-$1500 by European shipping lines, which means a tremendous 500% increase in the prices of the container, while others do not have the availability at all. The payment cycle has increased to three times resulting in low purchasing power and low circulation of money. Similarly, the freight charges for European destinations have been increasing by 400% i.e. from $700 to $3500. Though the margin per container for rice is very low, these unforeseen expenses have negatively impacted the industry,” said, Anshul Garg, Director and CEO of Aroma Agrotech.

The comparison table shows the change in freight charges across the globe.View Full Image

The comparison table shows the change in freight charges across the globe.

“ With alternative routes, such as circumnavigating the African continent. We have observed that the rates for container shipping on key routes have escalated, reflecting these increased costs,” said, Tirth Shah, Executive Director, of GSP Crop Science.

Time Crunch

Navigating the longer Cape of Good Hope route to avoid the Red Sea adds 12-14 days to sailing schedules, disrupting delivery timelines and impacting customer satisfaction.

Rajan Nair from Alltime Shipping emphasised the delay in exports to the US and Europe due to these extended voyages. So far, the attacks in the “Red Sea have not disrupted global supply chains to the same extent that the pandemic did,” Nair added.

Costly Alternatives

Rerouting to bypass the Red Sea also pushes up fuel costs and transit times, significantly raising the landed cost of imported goods. “Ocean freight prices have surged by 56% due to increased fuel surcharges, insurance costs, and adjustments like GRI or RRI implemented by shipping liners. The voyage distance has extended by 3,200 nautical miles, resulting in higher fuel consumption and operational costs,” said Rajesh Mehta of Liladhar Pasoo Group, while pointing out the doubling of costs for goods like electronics and high-end engineering items due to the shift to air freight.

COVID already has impacted our businesses and a lot of companies are under deep losses. If the Red Sea issue isn’t solved, the industry will sink deeper into losses and eventually will affect the economic growth of India at large in the long run, said Suresh Tripathi, Founder and Managing Director of DD Maritime Pvt Ltd.

“Economists have stated that the costs are going to increase by 60%, and concerning the cost of goods, the response is the same as above for import too as ship transit is affected both ways, due to which the cost of material will increase and naturally when the cost will increase, demand will go down,” Tripathi further added.

Frequent changes in shipping rates pose challenges for businesses in planning and budgeting transportation costs, hindering long-term growth. This uncertainty leads to inflationary pressures, reduced consumer demand, and impacts overall business performance. “Importers face inflated container prices, squeezing profits and margins. Fluctuating container prices and unpredictable delivery times discourage investment, impacting economic growth,” Pushpank Kaushik, CEO of Jassper Shipping, observed.

India is not the only country facing the brunt. “The fact that China’s largest state-owned shipping company, Cosco, suspended shipping to Israel through the Red Sea is not reassuring. Even they are suspecting further conflict,” said Samir N. Kapadia, Founder and CEO of India Index.

Overall Impact

The rising freight has become a serious concern for both sellers and buyers as one of them has to bear the brunt. Wherever the buyers have sufficient inventories, consignments are held back, even containers are being held back, Sahai added.

The combined effect of higher container prices and longer transit times makes Indian exports less competitive in the global market, Kaushik said, while explaining how exporters struggle to absorb these additional costs, potentially impacting their share in the international market.

Exporters are urging the government to intervene at a global level to ensure the safety of shipping routes and bring normalcy back to the industry.

Suresh Tripathi of DD Maritime underscored the long-term impact of the crisis on India’s economic growth if left unresolved.

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Published: 09 Jan 2024, 04:59 PM IST

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