The disruptions in the red sea are leading to a crisis in world trade. The Red Sea is an important trade route with two major choke points – Bab al-Mandab Strait and Suez Canal – that account for 12% of the global shipping. However, the ships passing through Suez Canal are currently down to half the pre-attack number by the Houthi rebels.
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The existing crisis on Red Sea in Red Sea as Howes continue to bomb the route could cost Indian exporters to the tune of about $30 billion now how the threat on Red Sea has been in existence for a while has had an impact on the crude prices uh which have been extremely
Volatile in the past 15 days what is the immediate impact and how is the immediate trade impact on Route uh to the tune of $30 billion how do you really explain that so sha I think if you look at the map and you look at
Where the Red Sea is and the sus Canal being the most instrumental fundamental sort of you know route that that ships container Ships Take across the world and we have it right here if the Swiss canal and if the Red Sea were to be avoided then all Container ships will
Have to go via the Cape of Good Hope which is the southernmost part of South Africa now that entire Journey could take as much as 7 to 15 days longer for ships flying from Asia to Northern Europe and that is likely to obviously have a much larger impact on the cost
That Freight that that shipping companies incor now according to some estimates that cost the shipping cost by way of this extended route could go up as much as 150% that is 2 and a half times what it usually takes the average uh you know fair right now for ships
Which are the regular 40t containers which are applying from the Swiss Canal which is under threat right now and has been under threat for almost a month or so now uh the shipping cost for every container has gone up as much as $4,000 this in itself is more than a
100% jump so containers that could uh that could apply for as little as$ 17800 are now going to cost the Importer stroke exporters as much as $4,000 now there is this is the direct cost there is also an indirect cost and that indirect cost is now by way of risk
Premium when when it comes to ensuring the freight now there is obviously some degree of risk every time any sort of travel is undertaken whether there is Cargo being moved by air whether there is Cargo being moved by Road by rail or by ships now in the case of a known risk
And a more pronounced risk which is by way of at one end of the spectrum the houti attacks on the other end of the spectrum you’ve got the Somalian pirates so there is an additional risk premium now so while there is going to be a longer route and a heavier fee that you
Will take you will pay if you take the Cape of Good Hope route but if you RIS still continue to take the Swiss Canal route then there is a risk premium and that risk premium could increase overall shipping cost by another 7 to 8% According to some estimates so overall
What does this mean now specifically for though for India to begin with there is going to be as much as a $3 billion impact on trade so what is the biggest casualty in this trade the biggest casualty is that up until now even for importing the cheap Russian oil we’ve
Been using the passage of the Swiss Canal now if the Russian oil were to come to Indian Shores using the longer route then we are looking at as much as $30 billion worth of impact that India will have to incor to import that oil from Russia now India’s own exports to
Europe and these exports include and you know if you if you consider rice even though last year we’ve seen multiple restrictions on rice exports but rice alone being exported to Europe is a chunk of India’s shipments that pass through the Swiss Canal add to that other other you know Goods like textiles
Leather products Etc which India exports overall you’re looking at almost a 6 to 7% of India’s exports getting hit and that is going to cost India about $30 billion when you look at the World At Large you are obviously looking at inflation you’re looking at basic Commodities basic Goods like oil gas Etc
Which not gas as much oil definitely which passes through Europe and Asia using the Swiss Canal all of that is going to obviously put pressure on in oil prices oil prices ever since the Israel war struck out have been in any case volatile we’ve seen it breach the
$100 mark it has come down now to the $80 or so Mark which is still in line with what the world has factored in but these longer routes longer Shipping Lines are going to play havoc on the oil trade definitely and add to that the pressures on inflation inflation
Continuing to rise is going to keep all central banks on tenter hooks when it comes to rate hikes or rate pauses rate Cuts could further get delayed and that is going to obviously then play out on uh on corporate cycles of uh investing and borrowing so overall you’re looking
At inflation continuing to be sticky you’re looking at the overall price of shipments going up adding more W to already existing inflation worries and not a great picture and not a great position to be in for anybody in the world absolutely and and you know since that attack uh we’re given to understand
On the traditional red sea route shipments have gone down about 44% and now if if you put the numbers together and since we’re talking about $30 billion in exports India exported Goods over $451 billion last year and we are trying to extrapolate that number to
This fiscal year as well 6 to 7% of that would be $30 million but we were looking at a bigger number this year so turnaround for India specifically is not coming through as well absolutely and I think this is the ideal day where you needed something like the IMC you needed
The India middle east Europe economic Corridor an alternative to alternative to the Swiss Canal so for India specifically to trade with Europe or with the Middle East it obviously becomes a much more uh lucrative port or a much more lucrative route to take and avoid the Cape of Good Hope the longer
Route and avoid the so Indian ships from the port of Mumbai could go directly to Dubai and from Dubai take the rail route stroke uh you know the the road route all the way till hia Port you have bypassed the Swiss canal and from hia Port enter Europe
Directly so I think this is the day that India really needed the IMC but still I mean you know uh not all hope is lost on that project despite China’s best efforts to strengthen the Bri I think India and us and Israel will want to
Stick the I to you to will want to stick to making the IMC a reality if not soon enough then definitely com years absolutely need for a an alternative route an IMC to perhaps come out faster if India were to were to exercise any of its Alternatives at the moment but
Before before we move on I think this will also have a direct impact on India’s own aspirations to export more perhaps the cad which was narrowing could widen going forward I’m not sure if there is a direct impact on Imports but exports definitely taking a hit so I
Think exports are definitely taking a hit exports to Europe are going to become more expensive for India more expensive for European countries to import from India because of the longer sea route which will be taken and on Imports I think the biggest casualty is going to be the cheap Russian oil and
The cheap Russian oil is no longer going to be as cheap in any case with the discounts being gradually withdrawn by Russia and now a longer sea route from the Cape of Good Hope coming into India Imports is going to make that cheap Russian o a little more expensive a
Bigger import bill I think we’re looking at that as an immediate casualty uh of what’s going to happen as far as how these attack in Red Sea is concerned and the danger to the Swiss Canal pass passage as of today