The impact of the Red Sea crisis, which is causing shipments to take longer routes or experience delays, is expected to have a more significant effect on India's trade starting January 2024, according to a senior government official.
"So far, there hasn't been much impact, but from January onwards, we may see the impact of the situation unfolding in the Red Sea," the official, who wished not to be named, stated.
Official figures detailing India's exports and imports for January 2024 are scheduled for release on February 15.
In a separate briefing on January 15, the commerce ministry noted that, thus far, the impact of the Suez Canal crisis on Indian exports and imports has been limited. However, the ministry cautioned that the cumulative effect of higher freight costs, increased insurance premiums, and extended transit times could significantly raise the cost of imported goods.
India's exports in December 2023 entered positive territory, registering a growth of 0.96 percent compared to the same month the previous year, following a contraction in the preceding months.
"We anticipate higher export volumes in the last quarter of the current fiscal year. We are closely monitoring the situation in the Red Sea, and while it will have some negative impact, the extent of the impact will need to be assessed, and we will conduct that assessment soon," said Commerce Secretary Sunil Barthwal.
The commerce ministry observed that, since mid-November, with attacks on commercial shipping vessels in the lower Red Sea, approximately 95 percent of vessels have rerouted around the Cape of Good Hope, adding 4000 to 6000 nautical miles and 14 to 20 days to their journeys.
The Red Sea strait is crucial for 30 percent of global container traffic and 12 percent of global trade. About 80 percent of India's merchandise trade with Europe passes through this route.
Since the outbreak of the Israel-Hamas war in October, the Red Sea has been in the news for periodic attacks on commercial vessels by Houthi rebels of Yemen, raising concerns about its impact on global maritime commerce.
Indian exporters have been grappling with rising shipping costs as attacks on commercial vessels using the Red Sea route persist, leading freight companies to choose the longer route around Africa to reach the west or wait at nearby ports to ensure safe passage through the Suez Canal.
Barthwal mentioned that the ministry has advised the Export Credit Guarantee Corporation (ECGC) not to increase their rates moving forward, as exporters face higher shipping costs due to tensions in the Red Sea route.
The trade ministry is set to hold a meeting on January 17 with concerned ministries, including shipping and finance, to discuss the fallout of the Red Sea attacks.
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