Red Sea Crisis, Impact On Shipping Costs

Even as the Red Sea crisis pushes up shipping expenses, Indian exporters are getting some relief from the higher cost burden by negotiating rates afresh with their buyers, a government official said, says an article published on money control website.

Summary

• The Red Sea crisis, marked by attacks on commercial vessels, has significantly impacted global container traffic and trade, with the strait being vital for 30 percent of global container traffic and 12 percent of global trade.
• Indian exporters have found relief from the increased shipping costs by renegotiating rates with their buyers. The cost burden is being shared between exporters and importers.
• The Drewry World Container Index has witnessed a substantial increase in shipping expenses, reaching $3,786 per 40-foot container. However, through renegotiated contracts, Indian exporters are able to mitigate the impact of higher shipping costs.
• Exporters have adapted to the new rates and are collaborating with importers to manage the increased freight costs. Israr Ahmed, president (officiate) of the Federation of Indian Export Organisations, highlights the shifting dynamics in new contracts, with importers also sharing the cost burden.

Overview Of The Crisis

The Red Sea crisis, marked by attacks on commercial vessels, has significantly impacted global container traffic and trade, with the strait being vital for 30 percent of global container traffic and 12 percent of global trade.

Negotiating Rates, Relief For Indian Exporters

Indian exporters have found relief from the increased shipping costs by renegotiating rates with their buyers. The cost burden is being shared between exporters and importers, alleviating some of the financial strain.

Rate Increases And Negotiations

The Drewry World Container Index has witnessed a substantial increase in shipping expenses, reaching $3,786 per 40-foot container. However, through renegotiated contracts, Indian exporters are able to mitigate the impact of higher shipping costs.

Acceptance Of New Rates

Exporters have adapted to the new rates and are collaborating with importers to manage the increased freight costs. Israr Ahmed, president (officiate) of the Federation of Indian Export Organisations, highlights the shifting dynamics in new contracts, with importers also sharing the cost burden.

Alternative Routes And Future Outlook

Amid ongoing attacks in the Red Sea region, freight companies are opting for longer routes or waiting at nearby ports to ensure safe passage. Indian exporters are exploring alternative routes, such as shipping to the West Coast and trucking goods to the US East Coast, or circumnavigating the Cape of Good Hope. As alternative routes become more common, prices are expected to gradually decrease.

Global Impact And Trade Concerns

The United Nations Conference on Trade and Development (UNCTAD) reports a decrease in trade volumes through the Suez Canal, which handles 12 percent to 15 percent of global trade. J.P. Morgan Research estimates that 30 percent of global container trade passes through the Suez Canal, highlighting the significant disruption caused by the Red Sea shipping crisis.

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Source: money control

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