February 18, 2024
Red Sea Crisis Impact on Indian Trade and Sectors
Finance Business

Red Sea Crisis Impact on Indian Trade and Sectors

Red Sea Crisis Impact on Indian Trade and Sectors/AFP

Red Sea Crisis Impact on Indian Trade and Sectors

Red Sea Crisis and Trade Impact:
The ongoing Red Sea crisis is presenting challenges for various sectors, particularly affecting trade routes through the Suez Canal used by Indian companies for commerce with Europe, North America, North Africa, and parts of the Middle East. These regions accounted for 50% of India’s exports (₹18 lakh crore) and 30% of imports (₹17 lakh crore) in the last fiscal year, indicating a significant impact on India’s overall merchandise trade.

Alternative Routes and Increased Costs:
Due to heightened attacks on ships in the Red Sea since November 2023, many shippers are exploring alternative routes past the Cape of Good Hope. While these routes are longer, they have stretched delivery times by 15-20 days and increased transit costs due to higher freight rates and insurance premiums.

Differential Impact Across Sectors:
CRISIL expects the Red Sea crisis to have a varied impact across sectors:

  1. Agri Commodities and Marine Foods: Significant impact due to the perishable nature of goods and lean margin profiles, limiting their ability to absorb rising freight costs. Basmati rice exports, for example, have seen a decline as freight costs rise.
  2. Textiles, Chemicals, and Capital Goods: Immediate impact may be limited as these sectors have better ability to pass on higher costs or are in a weaker trade cycle. Prolonged crises could make these sectors vulnerable as working capital cycles stretch.
  3. Shipping Sector: May benefit from rising freight rates.
  4. Pharmaceuticals, Metals, and Fertilisers: Expected to be less impacted as these sectors enjoy healthy profitability and can absorb higher freight costs.

Overall Industry Impact:
While some sectors face immediate challenges, others may experience delayed impacts. The situation underscores the need for companies to adapt to alternative trade routes and strategies to navigate the crisis’s effects on global trade.

Note: CRISIL data and industry insights have been used for analysis.

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