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The Red Sea crisis: Commerce department flags rising import cost

January 23, 2024 20:29 IST

The Red Sea strait is vital for 30 per cent of global container traffic and 12 per cent of global trade.

Red Sea crisis

Photograph: Ralph Orlowski/Reuters

Growing attacks on commercial shipping vessels travelling through the lower Red Sea have resulted in a combined impact of higher freight costs, insurance premiums and longer transit times, the commerce department said on Monday, cautioning that it can make imported goods significantly more expensive.

 

However, as of now, container availability has not been seen as an issue as adequate empties are available.

The Red Sea strait is vital for 30 per cent of global container traffic and 12 per cent of global trade.

The cost of freight and insurance has risen due to ships being compelled to avoid the Red Sea region and take a longer route around the Cape of Good Hope due to persistent attacks by Iran-backed Houthi rebels in the Red Sea region.

Additional secretary L Satya Srinivas told reporters that 95 per cent of vessels have rerouted around the Cape of Good Hope, adding 4,000 to 6,000 nautical miles and 14 to 20 days to journey.

80 per cent of India's merchandise trade with Europe passes via the Red Sea.

Major shipping lines have stopped or temporarily halted Red Sea operations, including Maersk, MSC, Hapag Lloyd,  Srinivas said.

Exporters are also holding back their consignments due to high freight and surcharges.

The sailing of most of the ships has been impacted and generally postponed by 2-3 weeks as the incoming ships, with longer routes, are delayed,  he said, adding that shipping costs are rising owing to growing freight rates.

That apart, an inter-ministerial consultation, with top officials from the ministry of external affairs, defence, shipping, commerce and finance met on Wednesday to strategise measures to tackle the impact on trade due to the ongoing Red Sea crisis.

Earlier this month, commerce secretary Sunil Barthwal chaired a meeting with exporters and stakeholders concerned to understand the challenges faced by the trade due to the crisis.

According to the initial assessment, conducted by a New Delhi-based think tank Research and Information System for Developing Countries, India may see a $30 billion impact on its total exports due to the crisis.

Last year, India exported goods worth $451 billion.

The Department of Commerce is computing official estimates on the impact of the Red Sea crisis on Indian exports and is expected to share data on the estimated impact next week.

Shreya Nandi
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