Red Sea crisis: Government must come to the rescue of MSME exporters

NEW DELHI : Logistics cost has serious implications on the country’s manufacturing sector, export competitiveness and global positioning. The Red Sea route, which is shorter and faster, was the preferred choice for most shipping companies. Ships transporting goods from major Indian ports like Mumbai and JNPT navigated through the Suez Canal into the Mediterranean Sea to reach various European ports depending on their destinations.

India was heavily reliant on this route for trade and energy imports and due to the disruptions; exporters here now have to diversify their trade routes. Since the security situation in the Red Sea has started getting worse, it has resulted in higher insurance rates and more travel time for the exporters.

Major shipping companies like Equinor and Maersk have increased their costs which is hitting the Indian companies very hard. Disruption in freight services consequent to the deluge and almost a 50 per cent increase in air freight charges have affected the export of perishable goods like vegetables, flowers, fruits, and eggs to the UK, the US and among other parts of the world.

Exporters are keeping their fingers crossed due to the significant jump in freight costs at present. India’s exports will surely be impacted due to the increase in freight costs.  

In the year 2023-24, Indian exports had a big increase in terms of volume as well as money. The total exports for the financial year were worth nearly $450 billion and MSMEs had played a major role in the exports.   

The Indian research and information systems has estimated that higher container shipping rates and delayed shipments due to change in the route could cause a significant drop in Indian exports in the coming year. The global supply chains have suffered as vessels have to take long routes for exports and imports. The immediate ripple effects are seen in increased freight costs and small and medium Industries in India will be its major victim. 

The entire world is in a credit crisis and may possibly not be in a position to take this hit. Government agencies need to come to the rescue of MSME sector to keep up the growth engine and also to reach a $5 trillion economy. Especially for the perishable goods, new markets need to be sourced in the Asian and the far eastern regions.   

Control over the export container pricing could also be thought about with some incentive mechanism on an immediate basis that could help turn the tide. Since the seasonal perishable goods could be the first casualty, an urgent solution from the economic luminaries within the government should be forthcoming.

Author : Manguirish Pai Raiker, Chairman, National Council for MSME, Assocham.