Indian exporters brace for shipping cost surge as Suez Canal bypass disrupts trade

Indian exporters are facing potential increases in shipping costs as shipping companies are compelled to bypass the Suez Canal, opting for a longer route around Africa to the West due to heightened tensions in the Red Sea. The alternative route around the Cape of Good Hope could extend shipping time between Mundra and Rotterdam by approximately one-third, leading experts to anticipate a rise in freight rates.

On Tuesday, leading global shipper Maersk announced the rerouting of all its vessels bound for the Red Sea for safety reasons. The decision came after major global shipping lines temporarily halted their Suez Canal-bound vessels last week following attacks by the Houthi militia on freight ships in the region. Maersk expressed confidence in a future resolution that would allow a return to using the Suez Canal, but the timing remains uncertain.

Approximately $200 billion worth of Indian exports traverse the Suez Canal annually, connecting the Mediterranean and the Red Sea. With the Suez Canal currently unavailable, India’s exports, including manufactured goods such as automotive parts, agricultural products, chemicals, textiles, readymade garments, and pharmaceutical products, are expected to be impacted.

Shashi Kiran Shetty, founder and chairman of Allcargo Logistics, commented on the situation, noting that the decision by shipping lines to avoid the Red Sea and opt for the Cape of Good Hope route could disrupt trade, causing delays and additional costs. While macroeconomic factors may limit significant increases in freight rates, longer transit times will affect sailing schedules and service reliability, resulting in delays. Even if shipping lines choose to return to the Red Sea, the possibility of an increased war surcharge may lead to higher costs.