India is bracing for a potential $30 billion blow to its exports in the current fiscal year as escalating threats to cargo vessels in the Red Sea lead to a surge in container shipping rates, prompting exporters to hold back shipments.
A Bloomberg report cited figures from a New Delhi-based think tank, the Research and Information System for Developing Countries, that indicates a 6.7 per cent drop in Indian exports based on last fiscal year’s $451 billion total.
Sachin Chaturvedi, the director-general of the think tank, stated, “The crisis in the Red Sea would indeed impact India’s trade and may lead to further contraction.”
The Suez Canal’s ship traffic has decreased by about 44 per cent, raising concerns about the disruption’s impact on India’s major shipping routes to Europe, the US East Coast, the Middle East, and African countries.
India’s reliance on the Red Sea for shipping to key destinations makes it particularly vulnerable to disruptions caused by the threats in the region.
The Indian government, led by Prime Minister Narendra Modi, is actively engaging with export promotion councils to explore strategies to safeguard trade transiting through the Red Sea.
Attacks by Yemen’s Iran-backed Houthi militants, targeting vessels in the Red Sea with missiles, have added complexity to the situation.
The government has not released official estimates on the impact of the Red Sea crisis on Indian exports, but it has taken proactive measures, such as deploying a warship to the Arabian Sea to address potential threats.
The disruptions in the Red Sea have triggered a domino effect, leading to a significant increase in container shipping rates.
Freightos.com, a cargo booking and payment platform, reports a 173 per cent surge in the spot rate for shipping goods in a 40-foot container from Asia to northern Europe, reaching over $4,000.
Similar increases are observed in rates from Asia to North America’s East Coast, rising 55 per cent to $3,900 for a 40-foot container.
Exporters and buyers are reportedly renegotiating contracts to adapt to the soaring freight charges. The Red Sea disruption is particularly concerning for India’s oil and auto sectors, potentially impacting margins.
Additionally, economists warn of inflationary pressures as higher global freight and insurance rates, coupled with potential supply chain issues, could contribute to cost-push inflation.
(With inputs from Bloomberg)
