Indian businesses are starting to feel the pinch of the escalating crisis in West Asia, with shipping rates for containers spiking steadily as more ships opt for a longer voyage around the Cape of Good Hope to avoid the troubled Red Sea-Suez Canal route.
There is a growing concern among the business fraternity that rates may go up further with oil prices touching a six-month high and insurance premiums for ship and cargo inching up due to the war.
Container or bulk ships sailing to Europe travel across the southern Arabian peninsula, 2066 km away from the immediate conflict zone around the Strait of Hormuz, a critical choke point for petroleum cargo. However, they have to go via Bab-al-Mandab Strait that lies between Yemen and the Horn of Africa, where Houthi militants, loyal to Iran, have vowed to avenge the Israel and US bombings in Iran.
“We are given to understand by the shipping lines that there is a possibility of a 30 per cent hike this week unless there is de-escalation in sight,” said Ashutosh Jaiswal, president of Century Plyboard, a major user of Syama Prasad Mookerjee Port in Calcutta.
According to Jaiswal, a 40-foot container is being quoted at $2300 a box and a 20-foot container for $1700 a box for import cargo from Europe.
The market had stabilised at this level after seeing a massive spike, even as the rates have doubled from the pre-pandemic level.
India, including Calcutta, has very few direct shipping routes to Europe or the US. Containers sail from Indian ports to transhipment hubs such as Singapore and Colombo for onward voyage.
Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO), said rates have gone up by 15-20 per cent already, and more is apprehended.
“Freight will go up as oil prices are going up. Moreover, the insurance premiums for cargo and ships are going up due to the warlike situation. And if ships avoid the Red Sea-Suez Canal and sail around the Cape of Good Hope in South Africa, the cost will immediately spike simply because it is a 12-14 days longer voyage,” Sahai explained.
The spike in freight rates, led by the geopolitical crisis, could not have come at a worse time for Indian business, which is already grappling with the uncertainty over tariffs.
“The business with the US is being impacted due to the sectoral tariff, and for Europe, we are now saddled with higher freight rates,” a senior official at the Engineering Export Promotion Council lamented.
However, given that higher freight rates will bite all countries, India will not be at a competitive disadvantage with others. “There will be a hit on the margin as the counterparty on the other side would not absorb the cost increase. It will be shared among the exporter, importer and the consumer as well,” said an exporter.