Red Sea crisis: Costs up, but no adverse impact on India’s trade so far, says official

Due to the attacks by Yemen-based Houthi rebels on commercial ships, the movement of goods from the Red Sea, the world’s busiest shipping route, has disrupted the global supply chains as vessels have to take long routes for exports and imports.

The immediate ripple effects are seen in increased freight costs, mandatory war risk insurance, and significant delays due to rerouting.

According to think tank GTRI, the average container spot rates have more than doubled since early December 2023.

To avoid attacks, most large shipping firms, since December 15 last year, have stopped using the Bab al-Mandab straits for trade with Europe via the Red Sea and Suez Canal. The closure of this route snaps a critical trade link between Europe and India and all of Asia.

Ships going to Europe will now move via a much longer route around the Cape of Good Hope, the bottom tip of Africa. This change increases voyage distances by 40% and raises transportation time and cost.

The two main shipping routes from India to Europe are via Bab-el-Mandeb Strait, Suez Canal and Red Sea; and via Cape of Good Hope, encircling Africa.

The Red Sea route is shorter and faster, making it the preferred option for most shipping companies. It starts from major Indian ports like Mumbai, JNPT, or Chennai, heads westward through the Arabian Sea, enters the Red Sea, and navigates through the Suez Canal into the Mediterranean Sea. From there, ships can reach various European ports depending on their destinations. India is heavily reliant on this strait for its crude oil, LNG imports and trade with West Asia, Africa, and Europe.

The Cape of Good Hope route is longer and slower than the Suez Canal route, but it avoids the potential for delays or disruptions. It is used for bulk cargo shipments where time is less critical or when political instability in West Asia raises concerns about using the Suez Canal.

It starts from the Indian ports, heads southward across the Indian Ocean, rounds the Cape of Good Hope at the southern tip of Africa, and then sails northward along the west coast of Africa before entering the Mediterranean Sea and reaching European ports.