Indian cos explore logistics options amid Red Sea supply chain disruptions

Indian companies are grappling with significant disruptions to their overseas supply chains, both in terms of imports and exports, as a result of ongoing issues in the Red Sea.

The delays in transit time, coupled with increased shipping and insurance costs, have prompted firms to take proactive measures to mitigate the impact on their operations. These measures include the creation of an additional pool of working capital, overstocking raw materials, and exploring alternative logistics options, such as finding different shipping routes, according to a report.

The Red Sea crisis, going into its fourth month, has led to significant disruptions in global trade, prompting carriers to reroute shipments via the Cape of Good Hope. As a result, Indian companies across various sectors are experiencing delays in fulfilling orders, container logjams, and increased freight costs.

One such strategy to address the challenges posed by the Red Sea crisis includes the creation of an additional pool of working capital to procure raw materials in advance, which are imported through affected routes. Furthermore, some firms are resorting to air freight to fulfil urgent demands while engaging in negotiations with clients, logistics providers, and insurance firms to navigate the situation effectively.

Ravi Jaipuria, Chairman of Varun Beverages, reportedly disclosed to investors that the company is overstocking raw materials imported for safety reasons despite the associated increase in costs. Jaipuria cited rising freight rates, delayed shipments, and heightened working capital requirements as key challenges faced by the company due to the crisis.

Similarly, companies in the confectionery sector are feeling the pinch, with cocoa prices skyrocketing and global shortages exacerbated by the Red Sea crisis. This has raised concerns over its potential impact on profitability.

Arvind Ltd reported a spillover of revenue into the current quarter due to the crisis, amounting to approximately Rs 20-25 crore. The company is actively negotiating freight costs and exploring alternative logistics options to minimise the impact on its operations. Meanwhile, some companies are opting for air freight to expedite deliveries.

India has already begun working with the United Arab Emirates on the India-Middle East-Europe Economic Corridor, which would present an alternate route to ship goods between India and Europe.