Red Sea attacks threaten to inflate India's export costs

AS SHIPPING LINES circumvent the Suez Canal route due to the attacks on cargo vessels by Yemen's Houthi group in the Red Sea, Indian exporters expect freight rates to go up by as much as 25%, and insurance premiums to rise. They also apprehend that trade might suffer significantly if the disruption continues for a longer period.

- MUKESH JAGOTA, SANDIP DAS & ARUNIMA BHARADWAJ

The persistence of the onslaught by the Iran-backed rebels could also stoke imported inflation and jack up costs of capital goods and raw materials for corporate India, which is on the cusp of a new investment cycle.

Any incremental spurt in inflation from the Red Sea incidents could also create some unease for the Reserve Bank of India, which has managed to rein in "core inflation," but is circumspect about "uncertain food prices".

The development could not have been at a worse time for India, given that in six of the first eight months of the current financial year, the country's merchandise exports shrank and in calendar 2023, the export value dipped 5%.

Indian exports to certain countries of Asia, North America, Africa and Europe, which go through Suez Canal, will now have to take a longer route through the Cape of Good Hope that will add another 12-14 days to travel time, trade circles say.

"Already ships that were to dock in India are getting delayed because either they have got stuck or taken an alternate route which is longer," Ajay Sahai, director general and chief executive officer at Federation of Indian Export Organisations, said.

Similarly, shipments that have left Indian shores with cargoes will take a little longer to reach their destination."In some cases buyers have asked for the shipments to be held back as they do not want to face an uncertain situation," Sahai said.