It’s been a year since Houthi militants began attacking commercial ships in the Red Sea, leading to a major disruption in global trade. Commercial ships now largely avoid the Suez Canal — the shortest sea link between Asia and Europe — and instead voyage longer round the Cape of Good Hope in South Africa.
Before the attacks began towards the end of 2023, about 12 per cent of global trade passed through the Suez Canal. That share plummeted by 66 per cent in July and by more than 70 per cent currently.
French shipping major CMA-CGM has said the rerouting to bypass the Red Sea continues to impede fluidity of global trade, with longer transit times and reduced availability of shipping capacity. Nor are there any signs that the situation will return to normal in the near future.
AP Moller-Maersk said that after careful consideration, prioritising both crew safety and cargo security, the Danish shipping major and its German peer Hapag-Lloyd have decided to embark on a collaboration by sailing south of Cape of Good Hope. They will return to the Red Sea when it is safe to do so.
It all started on November 19, 2023, when the Galaxy Leader cargo ship was hijacked by Houthis militants in the Red Sea. Three days later, armed persons boarded a commercial ship in the Gulf of Eden. The maritime industry saw it as yet another pirate attack, little imagining that it would be the beginning of an extended period of strife that would indefinitely cripple the global supply chain.
Lars Jensen, a Denmark-based expert on the container shipping industry, says the impact of the Red Sea crisis is multi-fold. From a global perspective, the most important impact has been the need for global container lines to divert around Africa. The resultant tight supply-demand situation has led to steep freight rates.
At a regional level, the crisis has led to an increase in the number of small container lines offering new services from India/ West Asia into the Red Sea as well as the Mediterranean. This is changing the face of competition in this trade lane, favouring local carriers over global giants.
According to Egyptian President Abdel Farrah el-Sisi, the Suez Canal has lost nearly $6 billion revenue in the first 7-8 months of the year, and this is expected to touch $9-10 billion by the end of the year.
For exporters, the biggest worry is the delay in cargo delivery. Israr Ahmed, Director of Chennai-based leather goods maker Farida Group, says travel to the US west coast does not involve the Red Sea and remains unchanged, but there are delays in reaching the US east coast and Europe as ships take the longer route around the Cape.
For instance, imports from Europe now take 60 days to arrive, compared to 30 earlier. And a direct connection from Mumbai to the US east coast takes 25-30 days compared with 16-18 days before the Red Sea crisis ensued, he says.
While container prices have reduced and their availability has improved, the biggest issue today is transit time. Agricultural produce, especially, is at risk of deterioration if it remains in transit for a longer time.
KS Binu, president of Kerala Steamer Agents Association, says rerouting to avoid the crisis-hit Red Sea is driving up the cost of Indian exports. With the major shipping lanes affected, freight rates have soared, and the disruptions have led to cancellation of export orders and imbalances in container availability across Indian ports.
On the flip side, the decrease in cargo volumes has enabled vessels to optimise available space and offer lower freight rates, he says.
KN Raghavan, secretary general of Seafood Exporters Association of India, points to how the crisis has hit India’s seafood exports to the US, its major market. The freight rate for a 40-ft reefer (temperature-controlled) container surged to $7,000-8,000 from around $4,500 for the US east coast and $5,500 for the US west coast.
The decline in cargo volumes, however, has helped ease rates to around $4,900 for the east coast and $5,900 for the west coast. Twenty-foot reefer containers remain about $500 cheaper than the 40-ft option. Shipping companies foresee rates falling further as volumes show no sign of recovery, Raghavan adds.
According to Emmanuel Nambusseril, Chairman of All India Spices Exporters Forum, delayed shipments are leading to deferred payments from customers, with some demanding quicker delivery through air freights. This is causing further financial strain.
Earlier, spice/herbal extracts with one-year shelf life took a month to reach the US or Europe. Now it takes 2-3 months, so customers refuse to accept the products closer to the expiry date, he says.
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