Indian exporters are struggling with soaring freight rates, prompting calls for government intervention to mitigate the impact on trade.
The disruption in the Red Sea route, caused by increasing attacks on ships since November 2023, has compelled global shipping lines to opt for longer trade routes, significantly affecting transit times and costs.
The Federation of Indian Export Organisations (FIEO) has highlighted the drastic consequences of this shift, particularly for low-value items like Basmati rice.
Director General Ajay Sahai emphasized that freight costs have surged by nearly 300 percent, with shipping lines increasingly favoring the Cape of Good Hope route. In response, exporters are advocating for increased credit support from the central government to offset the rising transportation expenses, particularly for shipments destined for Europe.
The extended transit duration of 15 to 20 days, coupled with elevated freight rates and insurance premiums associated with the alternative route, has intensified the financial strain on exporters.
Ratings agency Crisil has cautioned that sectors dealing with perishable goods, such as agricultural commodities and marine foods, are particularly vulnerable to the repercussions of escalating freight costs.
The perishable nature of these goods and their narrow profit margins amplify the challenges faced by exporters, limiting their ability to absorb increased transportation expenses.
Crisil's analysis underscores the significant impact on sectors heavily reliant on the Red Sea route, including agricultural commodities and marine foods, such as shrimp and prawn exports. With a substantial portion of India's exports destined for regions accessed through this route, the disruption poses a formidable challenge to the country's trade dynamics. The regions served by the Red Sea route accounted for 50 percent of India's exports valued at Rs 18 lakh crore and 30 percent of imports worth Rs 17 lakh crore in the last fiscal year.
Recognizing the urgency of the situation, the finance ministry is scheduled to convene a high-level meeting on February 5 to address the challenges stemming from the disruption in the Red Sea region. The meeting aims to devise strategies to ensure uninterrupted trade payments amidst the evolving trade landscape.
Experts suggests, as exporters navigate the complexities of disrupted shipping routes and escalating costs, concerted efforts from the government and stakeholders are imperative to safeguard India's export competitiveness and sustain vital trade channels in the face of emerging challenges.
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