Shipping costs up 60%: Trade body report

Predicting that the crisis in the Red Sea could be a prolonged one, with shipping costs going up by 40-60%, and insurance premiums up by 15-20%, trade policy think tank Global Trade Research Initiative advised in a report released Saturday that the government must step in with support to exporters.

The delay through rerouting of ships has also led to an increase in time taken on seas by up to 20 days, GTRI said.

The Baltic Index that tracks global shipping costs has soared 85% between December 29, 2023, and January 4. Apart from basic shipping costs the risk and peak season surcharges have also gone up. Though the total cost of shipping varies route to route, at some places it has gone up by five-six times.

The attacks by drones and missiles on merchant vessels have seen shipping costs and time to deliver a cargo go through the roof, putting margins of exporters under severe pressure. The real problem is being faced by those whose contracts also include costs of delivering goods at buyers’ ports.

India’s exports to key markets located on the US east coast, Europe and eastern ports of Latin America all use the Red Sea route through Suez Canal.

“Offering financial support and insurance schemes to Indian companies affected by trade disruptions could be considered,” said GRTI’s co-founder Ajay Srivastava.“While India is implementing measures to ensure the safety of its ships in the Red Sea, the effectiveness may be limited as most Indian cargo is carried by global shipping firms,” the report said.

India is heavily reliant on the Bab-el-Mandeb Strait, the main theatre of attacks by Houthis, for crude oil and LNG imports and trade with key regions. It also faces substantial economic and security risks from any disruption in this area.Bab-el-Mandeb Strait is between Yemen on the Arabian Peninsula and Djibouti and Eritrea in the Horn of Africa. It connects the Red Sea to the Gulf of Aden and by extension the Indian Ocean through the Suez Canal.

Approximately 65% of India’s crude oil imports in FY2023, valued at $105 billion, from countries like Iraq, Saudi Arabia, and others, likely passed through the Suez Canal .“India might look to diversify its sources of crude oil and LNG, and explore alternative trade routes to reduce dependency on the conflict-prone Red Sea passage,” the GTRI report said.