Experts Assess Potential Impact of Red Sea Crisis on Freight Costs

The Red Sea attacks by Houthi rebels have led to increased freight costs and logistical challenges for global trade. After Houthi rebels targeted a Singapore-flagged Maersk container, the US military sank three Houthi boats, prompting Maersk to withdraw its ships from the Red Sea for at least 48 hours. This has caused concerns about potential short-term and long-term impacts on Indian exports in 2024.

According to Ajay Sahai of the Federation of Indian Export Organisations, exporters are holding back consignments due to fears of theft or destruction, and buyers are advising companies to withhold shipments, particularly in contracts where buyers bear freight costs. With current freight rates on the rise and expected to increase by 50%, exporters are cautious about the potential impact on their businesses. Some shipping lines are opting for the longer route around the Cape of Good Hope, adding 12-14 days to voyage times, which could impact container availability in the short term.

Sahai anticipates a potential increase of up to 50% in freight rates, and India’s exports in 2024 are expected to expand by 3-4% to around $800 billion. However, there may be a slight decline in the merchandise sector offset by growth in the services sector. Sunil K Vaswani of the Container Shipping Lines Association pointed out that the rerouting requires extra capacities, leading to higher costs, which customers may eventually have to bear. Specific challenges include the surge in freight charges to Yemen from $850 to $2,400 per container, which has caused ripple effects in the domestic market, affecting basmati exports and causing price fluctuations in imported commodities like sunflower oil.

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