NEW DELHI: The targeted strikes by the US and the UK on Houthi militia have increased the worry for policymakers as the disruption around
Red Sea
has now begun to impact supply chains apart from making shipping schedules erratic.
While the commerce department is working on an inter-ministerial consultation next week to address some of the concerns and ensure that supplies are not affected, exporters said fears of an intensification of the tension in the area will increase costs.
Oil prices went up by 2% on Friday with Brent crude futures edging past $79 barrel around 9.15pm India time, while US West Texas Intermediate crude futures rose to $73.53.
Container rates have already soared with the benchmark Shanghai Containerised Freight Index rising 16% week-on-week to 2,206 points. The spot rates for a 20-feet container from Shanghai to Europe saw an 8% increase in a week to top $3,103.
In India too, prices have gone up but there are other disruptions. For instance, a leading insurance company has stopped providing marine insurance. “The government should impress upon companies to provide insurance as exporters can pay a higher premium. In the absence of a cover, they will have to send the goods uninsured,” said Fieo director general Ajay Sahai.
On the Amsterdam-Asia route, war risk premiums have increased, from 0.1% in early December to the current range of 0.5 to 0.7% and may go up further in case the tension escalates.
A key problem that businesses are now facing is delays as ships are going around the Cape of Good Hope, which is taking longer and they have to sail for an additional 14 days or so.
Sources added that the impact is likely to be more for the shipping lines that provide weekly container shipping service. They added that as only the detour of ships is taking around two extra weeks, it’s natural that the services will be impacted and the less availability of containers will also be felt soon.
Sahai said some of the shipping lines are not sticking to the schedule and are even unwilling to get a new date on when they intend to set sail.
A longer sail time will also impact container availability in the market.
Commerce department officials, who are keeping a close tab, said supplies haven’t been impacted so far but there may be issues in case the problem persists. On Friday, Tesla announced a shut down of its Berlin plant from January 29 to February 11 due to delays in supply chains.
According to estimates, around 10-15% of global shipping passes through the Red Sea and its vital link for commercial goods, including seaborne oil and LNG. Around 40% of Asia-Europe trade passes through this route.
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