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Freight Rates to Europe Double Due to Shipping Route Attacks

Freight rates to Europe ÔÇö IndiaÔÇÖs second largest export destination ÔÇö via the Red Sea region have almost doubled due to rising attacks along the crucial shipping route, a senior government official told The Indian Express.

Maersk Diverts Vessels from Red Sea Sparking Cost Fears

This comes after global shipping giant Maersk on Friday decided to extend its diversion of vessels from the Red Sea for the ÔÇ£foreseeableÔÇØ future, sparking fears of a sharp rise in freight and insurance cost for Indian products.

Impact on Freight Rates and Costs

ÔÇ£Multiple things are getting mixed here. Normally, the freight rates range from $500 to $600 through this route to Europe. But the peak season which is between January to March goes up to $1,500. Exporters have informed that this rate has gone to $2,000. Over and above there (war risk) surcharges being added which is taking the freight rates to nearly $3,000,ÔÇØ the official said.

Impact on Low-Value Exports and Long-Term Shipping Disruptions

The Indian Express had earlier reported that exports of low- value products such as textile and agriculture could get hit as exporters are holding back the consignments due to rising freight cost. This comes at a time when Indian textile exports have been on the decline due to weak demand in the West.

Meanwhile, the Global Trade Research Initiative (GTRI) said that New Delhi must prepare for long term shipping disruptions at the Bab-el-Mandeb Strait.

IndiaÔÇÖs Approach and Economic Risks

ÔÇ£IndiaÔÇÖs approach should include looking for alternative trade routes that bypass the Bab-el-Mandeb strait, negotiating contracts for oil and liquified natural gas with alternate suppliers, offering humanitarian aid to Yemen, negotiating freight with international shipping companies, and paying part of increased insurance expenses,ÔÇØ GTRI said.

AI legalese decoder Solution

The AI legalese decoder can help by evaluating shipping and insurance contracts to identify any potential clauses or provisions that could be leveraged to mitigate the increased costs. Additionally, it can assist in the negotiation of new contracts with alternate suppliers and international shipping companies to adapt to the changing trade routes and freight rates.

India, heavily reliant on the Bab-el-Mandeb Strait for crude oil and LNG imports and trade with key regions, faces substantial economic and security risks from any disruption in this area, the think tank said, stating that approximately 65 per cent of IndiaÔÇÖs crude oil imports in FY 2022-23, valued at $105 billion, from countries like Iraq, Saudi Arabia, and others, likely passed through the Suez Canal.

Exploring Alternative Routes and Diversification Strategies

ÔÇ£For overall merchandise trade with Europe and North Africa, about 50 per cent of imports and 60 per cent of exports, totaling $113 billion, might have used this route. The conflict has necessitated India to consider alternative routes, such as going around Arica via the Cape of Good Hope, which could lead to increased energy costs. India might look to diversify its sources of crude oil and LNG, and explore alternative trade routes to reduce dependency on the conflict-prone Red Sea passage,ÔÇØ the report said.

Impact on Shipping Costs and Alternatives

This conflict is leading to increased shipping costs (40-60 per cent) and delays due to rerouting (upto 20 days more), higher insurance premiums (15-20 per cent), and potential cargo loss from piracy and attacks, it added.

Asia-to-North Europe rates more than doubled to above $4,000 per 40-foot container this week, with Asia-to-Mediterranean prices climbing to $5,175, Reuters reported citing Freightos, a booking and payments platform for international freight. Moreover, some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments starting mid-January, and surcharges of $500 to as much as $2,700 per container could make all-in prices even higher, Judah Levine, FreightosÔÇÖ head of research, as per the Reuters report.

Comparison to Previous Shipping Rates

While rates have spiked, they remain far below 2021ÔÇÖs pandemic-fueled record highs of $14,000 per 40-foot container for Asia to North Europe and the Mediterranean and $22,000 for Asia to North AmericaÔÇÖs East Coast.

Conclusion

As India navigates the escalating freight rates and shipping disruptions due to the conflict in the Red Sea region, leveraging AI legalese decoder can provide valuable insights and assistance in renegotiating contracts, exploring alternative trade routes, and diversifying sources of crude oil and LNG to mitigate the impact on the country’s economy and businesses.

┬® The Indian Express Pvt Ltd

First uploaded on: 07-01-2024 at 03:50 IST