In a perfect storm of economic challenges, Indian exporters and importers are facing unprecedented hurdles as container costs surge, shipping routes are diverted around Africa, and the Red Sea becomes a perilous trade route due to recent attacks on cargo ships. The repercussions are sending shockwaves through the business community, particularly impacting exporters who are grappling with a significant rise in container prices and extended transit times, while importers face rising costs and potential inflationary pressures.
Container Costs Skyrocket
Container shipping costs have witnessed a staggering surge, reaching an alarming 30-400% increase depending on the destination. This surge forces exporters to make difficult choices, either absorbing the additional cost or risking a loss in competitiveness. Experts have highlighted the substantial rise in freight charges, with rates skyrocketing from $250 to $1500 for some Middle East routes and from $700 to $3500 for Europe.
The Drewery Global Index has surged by over US$1000 in the last 15 days, with some routes experiencing a freight increase as high as 300-400%. Additionally, shipping lines have imposed Red Sea/Contingency Surcharges ranging between US$1500 and US$3000, along with a Peak Season Surcharge of US$1500. Rice exports, in particular, have been severely impacted, with container costs in the Middle East witnessing tremendous fluctuations, causing a significant negative impact on the industry.
Time Crunch and Costly Alternatives
Navigating the longer Cape of Good Hope route to bypass the Red Sea adds 12-14 days to sailing schedules, disrupting delivery timelines and impacting customer satisfaction. Rajan Nair from Alltime Shipping emphasized the delays in exports to the US and Europe due to these extended voyages.
Rerouting to avoid the Red Sea not only disrupts schedules but also increases 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 implemented by shipping liners. The extended voyage distance by 3,200 nautical miles results in higher fuel consumption and operational costs.
Overall Impact and Urgent Call for Government Intervention
The rising freight costs pose a serious concern for both sellers and buyers, leading to consignments being held back, and even containers being withheld wherever buyers have sufficient inventories. The combined effect of higher container prices and longer transit times makes Indian exports less competitive in the global market.
Exporters are urgently calling for government intervention at a global level to ensure the safety of shipping routes and bring normalcy back to the industry. The long-term impact of the crisis on India's economic growth is underscored, emphasizing the need for a swift resolution to prevent lasting damage to the country's international trade competitiveness.