Crisis can impact India as 80% of exports to Europe takes place via Red Sea: Official

The Red Sea shipping crisis could impact India’s exports to Europe the most as about 80 per cent of the outbound shipments to Europe takes place through the Red Sea region, the commerce and industry ministry said on Monday.

This assumes significance as India’s goods exports to the European Union (EU) have already slowed due to weakening demand in the backdrop of the Russia-Ukraine war. The EU contributes to over 15 per cent of India’s total goods exports.

Moreover, a number of environmental related trade measures such as the carbon border adjustment mechanism and EU’s deforestation law are feared to hit India’s exports going forward.

The ministry said that there has been an increase in attacks on commercial shipping vessels travelling through the lower Red Sea since mid-November and 80 per cent of India’s merchandise trade with Europe passes via Red Sea.

“The cost is increasing due to the Red Sea disruption. But ultimately it will depend on demand. The US exports are also through the Suez route. Transport charges are surging. An additional congestion surcharge is also being charged. But if the demand is robust the shipments will go.

“If they are not time sensitive products they will move. It is a global issue. Whole of commodity moves from the eastern to the western part through the Red Sea route,” commerce secretary Sunil Barthwal said at a press briefing.

The ministry said that the Red Sea region is vital for 30 per cent of global container traffic and 12 per cent of global trade and about 95 per cent of vessels have rerouted around the Cape of Good Hope, adding 4000 to 6000 nautical miles and 14 to 20 days to journeys.

“Consignment has been put on hold due to high freight and surcharges (as per EPCs). The sailing of most of the ships have been impacted and generally postponed by 2-3 weeks as the incoming ships, with longer routes, are delayed. As of now, container availability has not been seen as an issue as adequate empties are available. However, the combined impact of higher freight costs, insurance premiums, and longer transit times could make imported goods significantly more expensive,” the ministry said
Indian shipments of low value products such as agriculture and textiles to Europe are primarily expected to face the impact of disruption in the Red Sea region.

Amid deepening tensions in the West Asia region, External Affairs Minister S Jaishankar on Sunday started his two day visit. The union government is also mulling on using alternate trade routes and has asked Export Credit Guarantee Corporation (ECGC) not to raise insurance premiums amid rising cost of shipping to Europe.

The Indian Express had reported that freight rates to Europe have more than doubled due to security tension in the Red Sea region. Fears of disruptions in the Red Sea region have risen and oil prices have begun inching up ever since the US and the UK on Friday attacked Houthi rebels in Yemen in retaliation for the attacks on their commercial ships in the Red Sea region.

The commerce ministry had called an inter-ministerial meeting on Jan 17 where officials from five ministries — external affairs, defense, shipping and finance and commerce — will chalk out a plan to respond against global issues impacting Indian trade interest.

© The Indian Express Pvt Ltd

First uploaded on: 16-01-2024 at 03:41 IST

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