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Indian trade in the Red Sea? UPSC NOTE

 What is the impact on Indian trade flowing through the Red Sea?

  • After the attacks, major cargo shipping lines decided they would not operate on this route.

  • Almost 90% of western hemisphere cargo, both inbound or shipped from India.

  • That used to go through the Red Sea is now getting re-routed through the Cape of Good Hope.

  • Whether exporting to Europe, the U.S. east coast and even to countries in North Africa, the longer route is being used. 

  • The remaining 10% of Indian import or export cargo is either not moving or using a transit facility.

  • The impact of this move varies on the type of buyer-seller contract

  • If it is free on board, the freight burden is on the buyer, and in CIF (cost, insurance and freight) or C&F (cost and freight) contracts, the freight has to be borne by the exporter. 

  • In cases of FOB, and where the buyers have comfortable inventory, they are asking the Indian exporter to hold back consignment

  • Exporters who have to bear the freight are requesting their buyers to allow them to hold the consignment given the increase in freight costs.

  • Which includes peak season surcharge and contingency surcharge

  • Roughly 20-25% consignments are being held up. Container Corporation of India is saying about 25% of its containers are being held back by Indian exporters. 

  • Everybody is hoping the situation will normalise shortly, but looking into recent developments we are still keeping our fingers crossed,” adds Mr. Sahai. 

  • Gross imports of crude oil and petroleum products as a share of India’s gross imports in value terms was 25.8% in 2022-23.

  • 22.6% in the first half of the current fiscal. In fact, India’s import dependence (based on consumption).

  • In the April-September 2023 period was 87.6%, according to the government’s Petroleum Planning and Analysis Cell. 

  • Citing the turbulent situation, Petroleum Minister Hardeep Singh Puri said there was no plan to slash fuel prices.

  • Separately, in a note on the impact of the crisis on oil tankers, analytics firm Vortexa’s senior freight analyst Ioannis Papadimitriou observes that though freight rates for impacted routes have increased.

  • This has not been reflected in the overall tanker market, implying that there is as yet no en masse re-routing taking place. 

  • Additional war risk premiums in the Red Sea have been partially contributing to the freight-rate increases for the relevant routes, but this surcharge is significantly lower than the costs linked to re-routing via the Cape of Good Hope

  • Because of the current pricing dynamics, the tankers that are diverting are predominantly the ones chartered from companies announcing diversions as well as the ones operated by U.S. and Israel-linked entities.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Indian trade in the Red Sea? UPSC NOTE
Indian trade in the Red Sea? UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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