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NEW DELHI: 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.

Turkiye 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.

Missile and drone attacks in the Red Sea by Yemen’s Houthi, who say they are acting in solidarity with Palestinians in the Gaza war, have forced many ocean freight firms to re-route vessels away from the Suez Canal to around the Cape of Good Hope on the southern tip of Africa.

The crisis has begun to upend global supply chains, with Chinese exporters also stumbling in pain.

Many suppliers sign export deals on a cost, insurance and freight basis, making them responsible for any increases in freight and insurance costs.

Yemen’s Houthis say they will target US, British warships in self defence

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.

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 K.E. 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.

“One of the worst times”

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.

Global transport of goods: Red Sea crisis causing severe disruptions

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. 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 Turkiye 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,” said Jhunjhunwala.

Comments

200 characters
KU Feb 16, 2024 02:06pm
This is just a small example of opportunity cost or lost opportunity, if a land trade route was connected across the subcontinent, middle east, EU, economic activity could benefit nations and people.
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Aan Feb 16, 2024 07:25pm
At the start of war India was supporting to Israel and it is even continue now. Imagine how small industry suffers to bad decisions.
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Adi Feb 16, 2024 09:48pm
@Aan , how the heck does Indian political support (or lack of) for Israel play any role in this? Read without blinkers please
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