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

GTRI warned that longer disruptions at the Red Sea trade route can harm manufacturing lines of sectors like electronics, automobiles, chemicals, consumer goods, and machinery

GTRI Red Sea Trade Disruption

Exports from Kolkata port, a gateway to eastern India, are facing several challenges including, geopolitical tension, a government-imposed rice export ban and skyrocketing ocean freight costs, which could lead to a slowdown in trade activities, officials said on Sunday.

Key export items, like engineering goods, shrimp, and rice, have been impacted in recent weeks, they said.

Freight charges, especially for West Coast destinations, have surged by 30-50 per cent since December last year due to the escalating conflict in the Red Sea, they said.

Most of the major shipping liners are “rerouting vessels around the Cape of Good Hope to avoid the Red Sea, causing significant delays of 14-20 days,” one of the officials said.

Shipping through this alternative route resulted in higher freight and insurance costs, further squeezing exporters’ margins, he said.

This sudden hike has “disrupted cost structures and led to the temporary hold-up of several export consignments”, he said.

“Freight costs have soared to USD 400-500 per 20ft container and USD 600-700 for 40ft container shipments to the UK,” Debojyoti Basu, vice-president of the Calcutta Customs House Agents’ Association, told PTI.

“Further hampering exports is due to the recent ban on white and broken rice and 20 per cent export duty on parboiled rice by the government. Kolkata port used to witness around 2,000 containers of parboiled rice exports, primarily to Southeast Asia,” he said.

He also said soaring freight costs and administrative delays are squeezing profits and forcing some exporters to withhold orders.

India’s export control removed 9 million metric tonnes of grain from the international market since August, significantly impacted global prices.

“Our company’s overall rice export has decreased by more than 33 per cent. This significant decline can be attributed to two factors. First, the total ban on non-basmati raw rice exports, a key product from West Bengal, has severely impacted our sales.

“Second, the 20 per cent export duty on non-basmati parboiled rice, coupled with increased transportation costs due to the Red Sea issue,” said Suraj Agarwal director of Villa Group, a leading rice company.

These have resulted in a loss of over USD 80 per tonne in the last 20 shipments, he claimed.

“This has made us uncompetitive and led to a 50 per cent reduction in export orders and significantly narrowed our profit margins. The export business of non-basmati rice cannot sustain for long, if these factors do not change in the next 6 months,” he said.

Engineering Export Promotion Council (EEPC) India former chairman Rakesh Shah said, “The disruption in the Red Sea, a crucial global shipping lane, is driving up short-term container shipping rates and impacting timelines.

“Shipping delays are jeopardising adherence to Tariff Rate Quotas (TRQs) in Europe, potentially harming export opportunities,” he said.

The impact of the ongoing crisis around the Red Sea shipping route, which accounts for 50 per cent of the country’s exports and 30 per cent of imports last fiscal, will vary depending on the industry, according to a report.

The Kolkata port authorities, however, claim that they haven’t observed any substantial impact on export volumes yet.

Syama Prasad Mookerjee Port, Kolkata, chairman Rathendra Raman recently said the SMP anticipates just a 5 per cent growth in traffic for the current fiscal year 2023-24 owing to geopolitical headwinds.

He said the port may conclude the year with 68 million tonnes of cargo traffic.

In 2022-23, the Kolkata Dock System and Haldia Dock Complex achieved double-digit growth of 12.5 per cent over the previous fiscal year, handling 65.66 million tonnes of cargo.

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