Global shipping majors, including Denmark-based shipping company Maersk and Switzerland-based MSC Mediterranean Shipping Co, are looking to resume shipping operations in the Red Sea and the Gulf of Aden after the United Kingdom Maritime Trade Operations (UKMTO) and the Operation Prosperity Guardian (OPG) enhanced safety around the Suez Canal.
On December 27, US military forces announced they had shot down over 12 drone missiles launched by Yemen-based Houthi rebels in the Red Sea.
"There was no damage to ships in the area or reported injuries," the Pentagon's Central Command said in a social media post. There were also three anti-ship ballistic missile and two land-attack missile attacks over 10 hours.
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While Maersk, on December 25, said that it was preparing to resume shipping operations in the Red Sea, MSC Mediterranean is expected to hold a high-level meeting on December 27 to decide whether to restart operations around the Suez Canal or not.
Other major shipping lines like CMA CGM, and Hapag-Lloyd have still not announced resumption of services. However, industry experts expect that with the deployment of the OPG, global shipping majors are likely to resume services soon.
The OPG, a US-led military coalition of predominantly Western nations, was formed a few days ago to respond to the attacks by Houthi militants, backed by Iran, on shipping in the Red Sea.
India confident that order will be restored soon
India is confident that order will likely be restored soon and global supply chains will resume.
"Things are uncertain, some shipping lines are saying they are again going back to the same route. But (the EXIM industry has made) no representation to the ministry yet...We are hoping this will be a short-term problem, but will look into it if exporters voice their issues to us," a commerce ministry official told Moneycontrol.
Similarly, a senior official from the Ministry of Ports, Shipping, and Waterways said that following the deployment of United Kingdom Maritime Trade Operations and the OPG in the Red Sea, shipping lines are likely to restore operations through the Suez Canal soon.
Arindam Bagchi, the spokesperson for the Ministry of External Affairs, stated that India is closely observing the ongoing developments in the region and actively participating in international initiatives aimed at ensuring the freedom of shipping, and addressing concerns such as piracy.
The story so far
The attacks, which targeted commercial ships sailing through the Suez Canal, started with a drone attack on December 15 on Liberia-flagged MSC Palatium III in the Bab al-Mandab Strait off Yemen, at the southern end of the Red Sea.
Over the past month, Houthis have mounted more than 100 attacks on around 20 ships. The Houthis have also hijacked a Japanese-operated ship, which they continue to hold off the coast of Yemen.
Following the December 15 attack, shipping majors AP Moller-Maersk, MSC, CMA CGM, and Hapag-Lloyd temporarily suspended their Red Sea operations. The four companies cumulatively account for 53 percent of global maritime trade, according to industry estimates.
The companies said that they would be re-routing some of its services through the Cape of Good Hope. The trading route, which passes through the southern coastline of Africa, will delay shipments by 19-30 days.
What is at stake
According to estimates, around 12 percent of global trade passes through the 193-km long canal, which is the shortest sea link between Asia and Europe.
India's exports, via the Suez Canal, include food products, apparel, and electronics, among others to Europe, but its imports include the vital shipments of crude, analysts pointed out.
Data from Kpler showed a 9 percent rise in India's monthly intake of Russian oil in November from the previous month to 1.73 million barrels per day (bpd). The shipments are currently routed through the Suez Canal, and a wider conflict in the region that disrupts maritime trade may compel India to look at alternatives, another analyst pointed out.
"Of the overall merchandise trade with Europe and North Africa, India's exports and imports in FY2023 were $106 billion and $98 billion, respectively. Approximately 50 percent of these imports and 60 percent of exports, totalling a trade value of $113 billion annually, may have been through the Suez Canal route," Ajay Srivastava, founder of think-tank GTRI, told Moneycontrol.
He added that the Suez Canal route carries about 7-10 percent of the world's oil and 8 percent of liquefied natural gas annually.
"In the short term, there will be a moderate price rise due to higher cost of transport. In the medium term, global prices will be normal as supplies from other places will fill in. The same logic applies to other commodities," Srivastava said.
India's shipments, like low-end engineering products, steel, and commodities such as rice and garments, stand to be affected.
Emkay Global, in a report last week, said it fears that a rise in shipping cost will hit the profit and loss account of chemical makers, especially those of companies exporting to Europe.
The brokerage added that freight costs for automakers, especially for export-oriented companies like Bajaj Auto and TVS, may increase marginally. However, it expects no major impact on their profit and loss sheets.
"Delay in shipments may not see as severe an impact as the chip- shortage crisis as channel inventories have largely normalised in the passenger vehicle segment, and demand has also moderated reasonably," the brokerage added while speaking about automakers.
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