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regular-article-logo Thursday, 18 April 2024

Houthi attacks on Red Sea ships estimated to cause a loss of USD 62 billion to exporters

A recent survey by the Federation of Indian Export Organizations (Fieo) of 170 exporters across India reveals widespread concerns. Key affected products include sesame oil, rice, coffee, coconuts, frozen buffalo meat, spices, pharmaceuticals, textiles, leather goods and plastic packaging items

R. Suryamurthy New Delhi Published 26.02.24, 12:09 PM
Representational image

Representational image File picture

The attacks on Red Sea ships are estimated to cause a loss of $62 billion to exporters, which is 14 per cent of India’s exports of $447 billion in the last fiscal, according to exporter body Fieo.

Attacks by Yemen-based Houthis on commercial vessels could lead to a loss in market share to competitors such as Turkey, particularly for time-sensitive products.

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The attacks have disrupted the flow of Indian goods to key markets such as the UK, US, Europe, West Asia and Africa.

A recent survey by the Federation of Indian Export Organizations (Fieo) of 170 exporters across India reveals widespread concerns. Key affected products include sesame oil, rice, coffee, coconuts, frozen buffalo meat, spices, pharmaceuticals, textiles, leather goods, engineering goods and plastic packaging items.

“The situation has deteriorated further, with no improvement in sight,” says Ajay Sahai, CEO of Fieo.

“While some small operators use the Red Sea with buyer-backed insurance, major lines opt for the longer Cape of Good Hope route, leading to increased voyage times and freight costs, impacting profitability.”

Exporters are worried about losing market share because of higher prices and slower deliveries compared with competitors such as Turkey, particularly for time-sensitive food items like corn grits.

The survey paints a grim picture: cotton yarn exporters face a 600 per cent hike in
ocean freight, jeopardising competitiveness.

European garment buyers are shifting orders to Turkish suppliers due to faster delivery times. Sectors such as electronics, automobiles and chemicals face potential production disruptions due to delayed components.

Think tank GTRI warns companies relying on just-in-time manufacturing, with low inventory levels, are especially vulnerable to delays and disruptions.

Crisil Ratings categorises sectors based on potential impact: agricultural commodities and marine foods, with perishable nature and low margins, are the most vulnerable.

Textiles, chemicals and capital goods may have some initial resilience but could face challenges in the long-term.

Sectors such as shipping could benefit from rising freight rates, while pharmaceuticals, metals and fertilisers are expected to see a minimal impact.

“Our government request is to continue to use the diplomatic channel to improve the situation, ask all insurance companies to extend marine insurance and encourage banks to extend additional credit requirements, due to higher freight and longer voyage time. This may be the right time to restore Interest Equalisation Benefits to 5 per cent for all manufacturers MSMEs and 3 per cent to other eligible categories,” Sahai said.

India heavily relies on the Red Sea route for trade with Europe, North America, North Africa and part of West Asia.

These regions accounted for 50 per cent of India’s exports and 30 per cent of imports in the last fiscal year.

The two main routes from India to Europe are via the Red Sea and the Cape of Good Hope. The Red Sea route, shorter and faster, is preferred but susceptible to disruptions. The Cape of Good Hope route, longer and slower, avoids potential delays but adds to costs.

With tensions in the Red Sea showing no signs of abating, Indian exporters face a crucial period of navigating disruptions and adapting strategies to mitigate the impact on their businesses and competitiveness in global markets.

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