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Adani Ports move to stop handling cargo for select nations may hit Iran exports

Sources at the Iranian Embassy in Delhi told Moneycontrol they are monitoring the situation and will bring it up with the government. But exporters remain concerned that the growing shipments to Iran, mostly routed through APSEZ's Mundra port, will suffer a major blow.

October 13, 2021 / 03:48 PM IST
Mundra Port (File image: Wikimedia Commons)

Mundra Port (File image: Wikimedia Commons)

At a time when trade with Iran was under stress from the United States-led embargo, the Adani Ports and Special Economic Zone's (APSEZ) decision to stop handling cargo marked for Iran may prove to be a body blow to India's plans to capture the Iranian market, exporters say.

On October 11, APSEZ said it will not handle any export or import containerised cargo originating from Iran, Pakistan and Afghanistan from November 15 onwards, in a trade advisory.

This will apply to all terminals operated by APSEZ, including third-party terminals at APSEZ port, till further notice, the company said.

The advisory comes after the Directorate of Revenue Intelligence (DRI), acting on an intelligence input, last month seized nearly 3,000 kg of heroin from Afghanistan at Mundra port, operated by APSEZ.

While shipments to and from Afghanistan usually used to be bundled with those from Iran, trade has ground to a halt ever since the Taliban takeover of the country. India's $386 million trade with neighbouring Pakistan has ground to a halt ever since the Pulwama terror attacks. This left only Iran, a key overseas market and close geopolitical ally.

“As of now, the products which are set to be hit are mostly agri-goods, chemicals, and other products such as machinery, once Mundra closes down to Iran-bound trade. Pharma and medical equipment may also be hit, but they can always use the air route. However, we are sure that inland trade costs for exports to Iran will go up," Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisation, said.

On the other hand, incoming goods from Iran wouldn't be hurt so much since only a few products, such as limestone and gypsum, come from there, apart from petroleum, he added.

Iran via Mundra

Approximately 95 percent of the country’s trade by volume and 68 percent by value are moved through maritime transport. Overall, Adani Port and SEZ's 13 strategically located ports and terminals represent 24 percent of the country’s port capacity.

Of these, Mundra, the largest and flagship port of the group, located in Kutch District of Gujarat, is a major economic gateway for trade with Iran. According to experts, Mundra remains the nearest port for the Middle East, including Iran, the Persian Gulf. As a result, the majority of North and West India-focused inbound and outbound trade goes through Mundra.

"Mundra is the primary port for most trade with Iran. This latest unilateral decision will make it difficult for exporters, who are already suffering from currency issues and the trade embargo imposed by the United States," Dinesh Shetty, Joint Secretary of the Indo-Iran Chamber of Commerce said.

Shetty is the promoter of a major agri-input company, Ponalab Biogrowth, which is considered as one of the leading pioneers in plant nutrition. "The farmers will be most affected since agri-trade with Iran was picking up and items like bananas and coffee were increasingly being exported. Around 5-6 containers were leaving for Iran daily," Shetty said.

The deep draft, all-weather port is the largest commercial port in India. In the previous financial year (2020-21), it overtook state-run Jawaharlal Nehru Port Trust (JNPT) to become the country's largest container gateway by handling 5.65 million 20-foot equivalent units (TEUs) in FY21, posting a growth of 18 percent compared to last year. Meanwhile, JNPT handled 4.676 million TEUs in FY21.

"The move runs counter to the government's decision to focus on trade with Iran and invest in the Chabahar port. It is widely known that a lot of the traffic that will be generated, once Chabahar is up and running, will move to Mundra. The latest decision will be temporary," a senior functionary of the Federation of Freight Forwarders' Associations in India, said.

Business to continue

After hitting a peak of $17.06 billion in 2018-19, bilateral trade fell to $4.7 billion in 2019-20 as a result of the American embargo announced on Iran. This further halved to $2.1 billion in 2020-21 due to the pandemic. India has continued to maintain a positive balance of trade with the country.

However, other sector experts sounded less reticent on the issue, arguing that while the cost of trade will go up, trade will find a way and the latest hitch in India-Iran trade wouldn't become a major issue.

"Even if Mundra puts a stop to direct shipments from Iran, goods will find a bypass route soon. Exports from Iran will use the Free Trade Warehousing Zones (FTWZ) to reach India. The UAE has the largest number of FTWZs in the region, and trade flows from both countries will be routed through these zones," Anand Sharma, director of Mumbai-based consulting firm, Mantrana Maritime Advisory Pvt Ltd, said.

FTWZs are deemed foreign territories or ports or warehouses, designated for storage and other value-added activities under international customs laws. FTWZ units are allowed to hold inventory on behalf of foreign suppliers or domestic buyers.

"This is more of a posturing. Adani Ports can afford to say this since the trade amount is minuscule with these countries. One would never say this to a United States, Saudi Arabia or the United Arab Emirates. If a couple of thousand TEUs go missing from the more than 5 million TEUs handled by Mundra port itself, it wouldn't hurt Adani," Sharma stressed.

However, he said the cost of transportation and overall logistics will increase, in some cases marginally, mostly for Indian exporters. While Iran mostly sends over crude or processed petroleum to India, containerised items flow back the other way round.

A shipment of nearly $600 million worth of rice constituted the largest export to Iran in the previous financial year. This was followed by cane sugar ($256.9 million), organic chemicals ($242.6 million), tea ($111.5 million) and machinery ($60.5 million).

The ports at Mundra, Kandla, Pipavav, Hazira and Mumbai (JNPT) are the five top ports of the western seaboard of India. While Mundra and Hazira are owned by APSEZ, the company recently commissioned the Tuna Tekra bulk terminal near Kandla port. Iran-bound goods can still be routed through Pipavav and JNPT.
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 6 years. He has also extensively covered evolving industry and government issues. He was earlier with Business Standard newspaper.
first published: Oct 12, 2021 03:08 pm

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