Spike in freight rates: India needs own shipping line, say exporters

Due to these attacks, the shippers are taking consignments through the Cape of Good Hope, encircling Africa, resulting in delays of almost 14-20 days and also higher freight and insurance costs.

New Delhi: Freight rates have skyrocketed by up to 600 per cent due to the Red Sea crisis which would hurt the world trade, say Indian exporters while suggesting the government should start its own shipping line of global repute.

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The freight hike issue was flagged in the meeting of the Board of Trade (BoT) chaired by Commerce and Industry Minister Piyush Goyal on Tuesday, Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said.

He said “It is a serious issue” and the problem will hurt the global demand for goods besides pushing inflation in different countries.

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The situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, has escalated due to recent attacks by Yemen-based Houthi militants.

Due to these attacks, the shippers are taking consignments through the Cape of Good Hope, encircling Africa, resulting in delays of almost 14-20 days and also higher freight and insurance costs.

“At some places, the freight rates have jumped by 600 per cent,” Sahai said adding “We request for developing an Indian Shipping Line of global repute”.

Kolkata to Rotterdam freight increased from USD 500 to USD 4,000 now due to the Red Sea crisis.

According to the FIEO, India’s outward remittance on transport services is increasing with rising exports.

“We remitted over USD 80 billion as transport service charges in 2021. As the country moves towards the goal of USD 1 trillion in exports, this will touch USD 200 billion by 2030. A 25 per cent share by the Indian Shipping Line can save USD 50 billion year on year basis,” he added.

The Indian private sector may be engaged to develop such shipping lines as this will also reduce arm twisting by foreign shipping lines, he said.

Around 80 per cent of India’s merchandise trade with Europe passes through the Red Sea and substantial trade with the US also takes this route. Both these geographies account for 34 per cent of the country’s total exports.

The Red Sea strait is vital for 30 per cent of global container traffic and 12 per cent of world trade. About 95 per cent of the vessels have rerouted around Cape of Good Hope adding 4,000-6,000 nautical miles and 14-20 days to journeys.

The commerce ministry has called an inter-ministerial meeting on the crisis on Wednesday.

Senior officials from five ministries — external affairs, defence, shipping and finance (department of financial services) and commerce — will participate in the deliberations.

Exports to Europe, the east coast of the US and Latin America are facing problems due to the crisis.

Due to attacks, shipping lines have reduced their movement through the Red Sea and are taking the longer route via the Cape of Good Hope, encircling the African continent.

The trade route of Bab-el-Mandeb Strait, the Suez Canal, and the Red Sea is shorter and faster than the Cape of Good Hope route, making it the preferred option for most shipping companies.

The route starts from major Indian ports like Mumbai, JNPT, or Chennai, heads westward through the Arabian Sea, enters the Red Sea, and navigates through the Suez Canal into the Mediterranean Sea.

From there, ships can reach various European ports, depending on their destination.

The Cape of Good Hope route is longer and slower, but it avoids the potential for delays or disruptions at the Suez Canal.

It is typically used for bulk cargo shipments where time is less critical or when political instability in the Middle East raises concerns about using the Suez Canal.

The route starts from the same Indian ports, heads southward across the Indian Ocean, rounds the Cape of Good Hope at the southern tip of Africa, and then sails northward along the west coast of Africa before entering the Mediterranean Sea and reaching European ports.

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