Audi India will take a one-time hit in its volumes during the January-March quarter this year due to trade disruption on the Red Sea shipping route. Balbir Singh Dhillon, who heads the German carmaker’s India operations, expects the disruption could put 2-6 weeks of production at risk, negatively impacting around 15-20% of its volume during the quarter.
The Red Sea is crucial for trade between Europe, Asia, and Africa, connecting the Mediterranean Sea and the Indian Ocean through the Suez Canal. Following Houthi rebels’ attacks on commercial vessels passing through the Red Sea since December, shipping companies have been diverting their vessels around the Cape of Good Hope at the southern tip of Africa.
“There are multiple ships that have already sailed and had to pass through the Red Sea. But with the current situation potentially they will have to reroute. And rerouting depends upon situations like where the ship is, which company it is, and what rerouting it takes, and how much times it needs to refuel, we are looking at 2-6 weeks of delay,” Dhillon said to Autocar Professional.
Audi India sold 7,931 cars in 2023, registering a growth of 89% on year. The automaker offers 12 models in India- Q8 e-tron, e-tron, e-tron GT, A4, A5, A6, A8, Q3, Q5, Q7, Q8 and RS. Audi India assembles its models at Skoda’s facility in Aurangabad, while it also imports completely built units.
The Red Sea route handles around 12% of global trade, with around 1 billion tonnes of cargo passing through it annually. Cargo shipped between Europe and Asia is reportedly experiencing delays of at least 10 days as shipping companies are now diverting trades around Africa’s Cape of Good Hope. Also, the rerouting results in higher ocean freight rates.
When asked about the quantum of impact, Dhillon said there could be an impact on 15-20% of the volume compared to the year-ago quarter, with 2-6 weeks of production at risk. “We will have one one-time impact because eventually then all the fresh new ships will come only through the new route. Of course, the new route is longer and more expensive,” he noted.
However, the carmaker hopes to offset the volume loss in the first quarter to an extent with higher volumes in the subsequent quarters and channel stocks at dealerships.
“During the pandemic, we had a similar situation where supply chains were impacted much more. That was a time when customers did wait that time. But there are customers who want to buy immediately for functions like birthdays or marriages. To that extent, there is a challenge. But it is not that supply is not completely zero. We also have stock that is lying with us and dealerships,” Dhillon added.