The shipping crisis in the Suez Canal and Red Sea is upending global supply chains. Exporters in India have been hit hard.
Missile and drone attacks by Houthi militants in Yemen, who say they are acting in solidarity with Palestinians in the Gaza war, have forced many ocean freight firms to re-route vessels around the southern tip of Africa.
Many suppliers sign export deals on a cost, insurance and freight basis, making them responsible for any increases in freight and insurance costs.
In India, small exporters – who account for 40% of the country’s annual merchandise exports worth some $450 billion – have warned that job losses have started and could soar if the attacks, which began late last year, become prolonged.
ALSO SEE: US Failure to Back Funding Opens Door to China: Pacific Islands
Thin profit margins
Atul Jhunjhunwala, an exporter in the Indian eastern city of Kolkata, is tearing his hair out, having just lost another order due to the Red Sea crisis that has jacked up his shipping costs and times.
“Last week, I lost a big order to a Polish competitor who does not need to pay increased freight rates,” said Jhunjhunwala, head of Binayak Hi Tech Engineering which ships about 700 containers of machinery tools, industrial castings, and railway shed materials per year.
Turkish exporters were also benefiting at the expense of Indian companies, he said, adding that he has also sent some orders on to buyers at a loss after absorbing increased costs.
“No one can afford to lose buyers with whom we have worked for over decades,” he said.
Even before the crisis, India’s small exporters were operating at very thin profit margins – typically between 3% and 7%, according to industry estimates.
“Job losses are already visible in India’s textile hub of Tirupur due to the Red Sea issue in southern India where small exporters are working at one-third of their capacity,” said KE Raghunathan, a Chennai-based manufacturer and national chairman of the Association of Indian Entrepreneurs.
He noted that longer shipping times had led to less freight capacity and that the scarcity of containers was becoming a big problem for small exporters as big export houses have booked containers in bulk. The government should help small exporters otherwise many of them would “perish”, he added.
Export organisations have formally sought relief from the government which has formed a trade ministry panel to monitor the situation and consider their requests for help.
$14bn in merchandise sent to Europe, US via Red Sea
More than 80% of India’s merchandise trade with Europe and the United States would normally take place via the Red Sea. India exports roughly $8 billion of merchandise to Europe a month and more than $6 billion a month to the United States.
Textiles, engineering goods – which comprise steel, machinery and industrial parts – as well as gems and jewellery are India’s biggest sectors exporting to those regions.
Re-routing via the Cape of Good Hope has meant ships sailing from India will often need an extra 15-20 days before reaching destinations in Europe, greatly increasing costs.
For example, shipping a container to Britain now costs around $4,000 compared to $600 before the Red Sea crisis, Ashok Kajaria, chairman at Kajaria Ceramics told an analysts’ call last month.
The Red Sea crisis comes only a few years after the Covid-19 pandemic when freight rates soared as supply chains snarled and demand for goods jumped. India’s small exporters have also since been hit by weakening demand for their goods as Western economies grapple with high inflation levels.
“This is one of the worst times for many garment exporters,” said Nitin Seth, chief operating officer at Pratibha Syntex, an Indore-based garment manufacturer.
“If this situation persists, at least one-fifth of small exporters could resort to job cuts,” he said.
Textile sector
Other exporters in India’s textile industry – which directly employs 45 million people and indirectly another 15 million – said they were worried that they could soon lose business to Turkey’s clothing industry.
“Turkey, a major competitor for India’s textiles exports in Europe, poses a big risk to small exporters due to its locational advantage,” said Ajay Sahai, director general of the Federation of Indian Export Organisations.
In one silver lining, many export contracts for India will come up for renewal in March or April – the start of the business year – and many smaller exporters said they are hopeful that customers will agree to bear at least some of the burden of increased freight costs.
“We have a long-term relationship with our customers. We expect they would agree to absorb a part of higher freight rates when contracts come up for review,” Jhunjhunwala said.
- Reuters with additional editing by Jim Pollard
ALSO SEE:
US Frustration at Chinese ‘Inaction’ Over Red Sea Attacks
Shipping Firm to Use Saudi Land Routes to Avoid Red Sea Threat
Red Sea Attacks Spur a Surge in Asia-to-Europe Air Freight
Panama Canal Traffic Cut by Third, Adds to Red Sea Woes – AP
Chinese Exporters Face Shipping Crisis From Red Sea Attacks
Red Sea Shipping Disruption May Last ‘at Least a Few Months’
