Red Sea crisis: Freight costs rise for India Inc
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The Red Sea crisis has started to have repercussions for India Inc, leading to higher freight costs on certain routes, and doubling of transit time of vessels. Container leasing rates for one of the major routes, Shanghai to Chennai, have witnessed 144% increase in Jan 2024 from $85 per unit in Nov 2023, the latest data from Container xChange, an online container logistics platform, showed.

 

The average increase in freight cost for trade from India to Europe and US across sectors, including pharma, automobiles and textiles, has been around 40-50% in Jan 2024 compared to Sept 2023, experts told TOI. Storage charges are reasonable in India, hence liners are preferring to use leased out boxes instead of moving their own containers, they pointed out.
“Throughout Jan, container prices have consistently maintained historically elevated levels, reflecting a widespread belief that container prices would continue to soar due to the ongoing Red Sea crisis. So far, the degree of impact for India is lesser as compared to that felt in Europe and US,” they said, adding the market expects a further surge around Chinese New Year. (The Chinese New Year started from Feb 10 and celebrations will continue for 16 days).
“Our analysis reveals a pronounced capacity tightening in China, with container rates surging week on week as exporters grapple with moving containers out of China. The challenge compounds as repatriating empty containers from Europe to China faces obstacles due to the Red Sea crisis. In contrast, India experiences a milder impact compared to China and Europe,” Christian Roeloffs, cofounder and CEO of Container xChange, said.

 

Domestic companies use the Red Sea route through the Suez Canal to trade with Europe, North America and North Africa. These regions accounted for around 50% of India’s exports worth Rs 18 lakh crore, and 30% of imports valued at Rs 17 lakh crore last fiscal, according to Crisil Ratings.
“Exports to Europe and Africa are getting impacted as freight rates have shot up. Also, transit time is up, thus impacting cash flow. For our European purchases, transit time increased from 30 to 45 days. Since we buy on a CIF (cost, insurance and freight) basis from Europe, it’s not really affecting us,” an executive with a freight- forwarding firm said. To add to woes, the transit time for certain routes is an additional two weeks. Increasing attacks on ships sailing in this region since Nov 2023 have forced shippers to consider longer route past the Cape of Good Hope.

 

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