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.
Turkish 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 militants, 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.
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.
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.