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Business News/ Industry / Rise of pirates in Red Sea to take toll on India’s exim business. Here are items that will turn costlier
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Rise of pirates in Red Sea to take toll on India’s exim business. Here are items that will turn costlier

The threat of Somali pirates reshapes logistics, adding complexity and cost to international trade for Indian businesses. The Red Sea is important for oil movement, and rerouting around the southern tip of Africa is likely to hike energy prices, experts say.

The Red Sea is important for oil movement, and setbacks on such supplies or routing through a longer route of Africa are likely to hike energy prices. (AP)Premium
The Red Sea is important for oil movement, and setbacks on such supplies or routing through a longer route of Africa are likely to hike energy prices. (AP)

Rise of Somali Pirates: Soon after MV Ruen, a Malta-flagged merchant ship, was hijacked by pirates earlier this month in the Arabian Sea, there were concerns about the return of Somali pirates to international sea routes. Amid rising fears, Indian shipping regulator Director General of Shipping has advised seafarers to be cautious, according to a report by Business Standard. But the precautionary measures may not be easy on the pocket, say experts

The alternative route adds 12-14 days of sailing time and a 30-40 per cent increase in freight costs, impacting prices. Free on Board (FOB) exporters pass the burden to buyers, elevating landed prices. The piracy threat reshapes logistics, adding complexity and cost to international trade for Indian businesses. “For those exporting on a FOB basis, the higher freight will have to be borne by the buyer, thus increasing the landed price of the goods. In both situations, the prices of products are likely to go up," said Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations (FIEO).

The Red Sea is important for oil movement, and setbacks on such supplies or routing through a longer route of Africa are likely to hike energy prices, warned Sahai.

Some maritime security sources told Reuters that their assessment was that the incident was the first hijacking of a merchant ship by Somali pirates since 2017. Pirates who caused chaos in the key waterways from 2008 to 2018 may have returned, possibly encouraged by a relaxation of security or taking advantage of the chaos caused by attacks on shipping by Yemen’s Iran-aligned Houthi group amid the war in Gaza.

Also Read | Mint Explainer: Why Yemen’s Houthi rebels are a risk to global trade

The government body has also urged the seafarers to take longer routes than the regular ones to avoid pirate encounters, according to reports.

Yemen’s Houthi group have launched attacks using drones and missiles on commercial ships at the southern end of the Red Sea or Gulf of Aden. "This has prompted many shipping companies to suspend all Red Sea shipping routes via the Suez Canal. They will be rerouted to go via the Cape of Good Hope in South Africa instead," according to Rajan Nair, member of the Executive Committee of Exim Club and Alltime Shipping.

Those exporting on a CIF and C&F basis will have to bear the higher freight charges because of sending the goods via the Cape of Good Hope to Europe, as per Sahai.

These goods may turn costlier

The Red Sea accounts for roughly a third of containerised cargo and about 10-12 per cent of break bulk cargo. “Crude and petroleum, palm oil and other edible oil, cereals, machinery, electrical goods, auto components, apparel and textiles, leather, handicraft, carpets, etc. are likely to be affected as most of the products are now being exported in containers other than some commodities and metal, according to Sahai.

Products having shorter shelf life are at higher risk. Pharma products, edible products, and perishable items that need faster delivery will face higher transit time, Nair observed.

Goods that are imported from European countries to India, including machinery, vehicles, pharmaceuticals, and chemicals, will face higher costs and transit compared to those imported from other Mediterranean countries, Nair told Mint.

These countries will be affected

Countries around the Red Sea, like Saudi Arabia, Egypt, Jordan, Ethiopia, Israel, and Eritrea, will be affected the most as their sailing time using the alternate route drastically increases. Exports to Europe, Africa and North and South America may also be impacted since voyage time will go up by 12-14 days, as per Sahai.

The Red Sea route facilitates a significant number of exports globally. “More than 20 per cent of containers passing through the Suez Canal carry goods from Asia to European and Mediterranean Nations," explained Nair.

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Published: 22 Dec 2023, 06:21 PM IST
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