India's Trade Dynamics Amidst the Red Sea Crisis

Feb 06, 2024 - 10:51 AMAuthor - Admin


As of now, there has been no significant impact on India's exports and imports owing to the crisis in the Red Sea, as per an official statement. Although shipping costs have risen due to ships taking longer alternate routes.

"The volume of trade remains unaffected so far. Only transportation expenses have increased, impacting all nations reliant on the route. We must assess long-term demand, which depends on exports to the EU and US,” the official commented.

These two regions account for over 30% of India's exports. 

However, exporters have expressed concerns that the sharp rise in freight costs may eventually impact India's exports. Supply chains throughout the world have been thrown off balance by the Houthi rebels' attacks on commercial ships in the Red Sea, the busiest maritime route in the world. The rebels are located in Yemen. Due to forced rerouting, ships have had to travel lengthier routes, which has raised freight charges, necessitated war insurance premiums, and majorly delayed shipments.

As per reports, average container spot rates have more than doubled since early December 2022. Exporters of Basmati rice in particular are incurring freight costs of USD 2000 per 20-ton container for destinations around the Red Sea, a 233% rise.

The Houthi rebel group has continually targeted ships transporting goods via the crucial Bab al-Mandab strait, the link between the Mediterranean Sea and the Indian Ocean, using drones and rockets. This channel accounts for 30% of total global container traffic. India heavily depends on this route for trade and energy imports. Exporters are being forced to explore alternative trade channels owing to the frequent disruptions here.

While strikes have persisted for years, they escalated sharply in 2023 with the rebels now using anti-ship ballistic missiles. Since December 15, 2022, most shipping liners have avoided the Bab al-Mandab route to Europe via the Red Sea and Suez Canal to avoid attacks. The closure cuts off a vital trade artery between Europe and Asia. Ships traversing to Europe must now navigate an alternate 40% longer route around Africa’s Cape of Good Hope tip. This drastically increases voyage time and costs. India primarily uses two shipping corridors to Europe. The shorter Red Sea route via the Suez Canal is faster but prone to disruptions.

Two Main Shipping Routes from India to Europe

Red Sea Route: Through Bab-al-Mandab Strait, the Suez Canal, and the Mediterranean Sea. Shorter and faster but prone to disruptions now.

Cape of Good Hope Route: Circles Africa, avoiding the Suez Canal. Takes more time but is considered safer. Generally used for bulk cargo not time-sensitive.

Concerns for India

  • The Red Sea attacks are undermining shipping reliability and inflating costs. This route accounts for a major share of India's trade with Europe, the Middle East, and Africa. It is also a critical channel for oil and LNG imports.

  • Prolonged instability in the strait could necessitate long-term changes in trade ties and channels. India also risks supply shortages if energy imports are impacted. The official said though that as of now, there is no cause for deep concern. The crisis hasn't affected volumes yet, only costs. But its ripple effects need to be monitored.


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