Indian exporters stare at freight cost hikes as ships avoid Suez Canal

MUMBAI : Indian exporters are staring at a rise in shipping costs as freight lines are forced to avoid the Suez Canal and take a longer route around Africa to reach the West following tensions in the Red Sea.

The alternative route around the Cape of Good Hope could increase shipping time between Mundra and Rotterdam by a third, experts said, adding that freight rates are likely to go up.

Leading global shipper Maersk on Tuesday said all its vessels bound for the Red Sea are being re-routed for safety reasons. All major global shipping lines paused their Suez Canal-bound vessels last week following attacks by the Houthi militia on freight ships in the region.

“We have faith that a solution enabling a return to using the Suez Canal and transiting through the Red Sea and Gulf of Aden will be introduced in the near future, but at this time it remains difficult to determine exactly when this will be,” Maersk said in a client advisory.

An estimated $200 billion worth of Indian exports flow every year through the key waterway connecting the Mediterranean and the Red Sea. With the Suez Canal becoming unusable, India’s exports of manufactured goods including automotive parts, agricultural products, chemicals, textile and readymade garments and pharmaceutical products are likely to be affected.

“Decision of several shipping lines to avoid Red Sea and go through Cape of Good Hope shall disrupt trade, causing delays and incremental costs,” Shashi Kiran Shetty, Founder and Chairman, Allcargo Logistics, said.

Considering the macroeconomic environment, the freight rates may not go up much due to limited capacity for trade to absorb. However, longer transit time will impact sailing schedules and service reliability, causing delays. Should shipping lines decide to use Red Sea, there may still be an impact, as war surcharge may increase, leading to higher cost, he said.