The Global Trade Research Initiative (GTRI) has issued a stark warning about the escalating disruptions in the Red Sea, cautioning that the consequences could reverberate across global supply chains. The ongoing strife, attributed to attacks by Houthi rebels on commercial ships, is causing a ripple effect, impacting industries such as electronics, automobiles, chemicals, consumer goods, and machinery.
GTRI emphasizes the vulnerability of companies employing just-in-time manufacturing processes, as the disruptions pose a threat to timely component arrivals and contribute to rising manufacturing costs. Key sectors, including electronics, automotive, machinery, chemicals, pharmaceuticals, plastics, textiles, and consumer goods, are expected to face production setbacks.
As vessels are forced to take longer routes for exports and imports due to the Red Sea disruptions, immediate effects include increased freight costs, mandatory war risk insurance, and significant delays in transportation. GTRI co-founder Ajay Srivastava highlights that average container spot rates have more than doubled since December 2023, signaling the severity of the crisis.
The impact is already visible in various sectors, with Basmati rice exporters experiencing a staggering 233 per cent increase in freight costs per 20-tonne container. Sectors such as life-saving drugs, textiles, diesel, aviation turbine fuel (ATF), and steel are also grappling with the consequences of the disruptions.
Major shipping firms, including Maersk, MSC, Hapag-Lloyd, and CMA CGM, have opted to cease using the Bab al-Mandab straits for trade with Europe due to security concerns. Instead, they are choosing longer routes around the Cape of Good Hope, leading to a 40 per cent increase in voyage distances and higher transportation costs.
The closure of the Bab-el-Mandeb Strait, often referred to as the ‘Gate of Tears,’ which connects the Mediterranean Sea and the Indian Ocean, has highlighted the vulnerability of a crucial trade link, impacting 30 per cent of global container traffic. This shift poses a significant challenge for Indian ports like Mumbai, JNPT, and Chennai, as India grapples with the imperative to diversify trade routes amid escalating tensions and disruptions.
