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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