The recent attacks on ships and the decision of major shipping companies to use the Black Sea route is expected to significantly impact Indian trade as freight rates could see a sharp increase as vessels will take 15 more days to travel to Europe, resulting in container supply problems and higher costs.
On Sunday, a crude tanker with 25 Indian crew members, suffered a drone attack in the Red Sea. Drone and rocket attacks by Houthis, the Iran-backed rebel group that controls a large part of Yemen, in the last two weeks have prompted major companies including Maersk, Compagnie Maritime d’Affretement – Compagnie Generale Maritime, Hapag-Lloyd, Mediterranean Shipping Co and oil major BP, among others, to divert vessels away from the Red Sea. They are now taking a longer route going around the Cape of Good Hope, which is typically used for bulk cargo.
Shipping industry sources said that the charter cost for a ship, which works out to around USD 60,000 a day will rise as an additional 15 days will be required, which could jack up container costs 1.5 to two times to USD 1,500 to USD 2,000 a container for the India-Europe route. While the impact on freight rates has not shown up in a significant way just yet, businesses are expecting an increase. Capacity could be constrained by at least 20-25%, said a shipping industry executive.
“The challenges in shipping logistics, owing to increasing attacks on ships, is likely to push freight and insurance costs and add to already high uncertainties in the global trade. We hope disruptions can be addressed quickly with coalition patrolling in the Red Sea and rule of law prevailing in international water,” said Ajay Sahai, director general, Federation of Indian Export Organisations (Fieo).
A report by think tank Global Trade Research Initiative (GTRI) said that India is heavily reliant on this route for trade and energy imports, and faces increased costs and security risks, and efforts are needed to diversify trade routes and enhance regional maritime security cooperation.
“India may have to work to diversify its energy import so that it is less reliant on the Bab-el-Mandeb Strait. This includes increasing imports from other countries in the Persian Gulf, Africa, and Central Asia,” the report said, adding that nearly 30% of the container traffic is routed through this strait.
