Longer disruptions at Red Sea trade route may hurt auto, electronics production : GTRI

Longer disruptions at the crucial Red Sea trade route may hurt manufacturing lines of some sectors like electronics, automobiles, chemicals, consumer goods and machinery, economic think tank GTRI said on Sunday.

The Global Trade Research Initiative (GTRI) said companies relying on just-in-time manufacturing processes can be particularly vulnerable as they maintain low inventory levels and depend on the timely arrival of components and finished products.

Few industries where production will be impacted due to disruptions in global value chains include electronics, automotive, machinery, chemicals, pharmaceuticals, plastics, textiles, and consumer goods, it added.

Components and finished products are often shipped through the Suez Canal to reach different markets, and disruptions can lead to delays in manufacturing and increased costs, it said.

Due to the attacks by Houthi rebels on commercial ships, the movement of goods from the Red Sea, the world’s busiest shipping route, has disrupted the global supply chains as vessels have to take long routes for exports and imports. The immediate ripple effects are seen in increased freight costs, mandatory war risk insurance, and significant delays due to rerouting.

”The adverse impact will multiply if the disruption continues beyond a few more weeks as it will impact not only trade but local productions of many industries, which rely on just-in-time procurement/import of inputs through the global value chains spanning both Europe and Asia,” GTRI co-founder Ajay Srivastava said. He said that average container spot rates have more than doubled since early December 2023.

Basmati rice exporters face freight costs soaring to USD 2,000 per 20-tonne container for destinations around the Red Sea, marking a 233 per cent increase, Srivastava added. Similarly, he said, the other sectors which have faced issues include life-saving drugs, textiles, diesel, ATF, and steel.

Exporters have also expressed apprehensions that if the crisis continues, it will hurt the country’s trade. Mumbai-based exporter SK Saraf said the time is right for India to consider building a big domestic shipping company, as, at present, ”we are completely dependent on foreign shippers”.