Freight rates from Asia have spiked by 53 per cent in a month depending on the route plus container shipping giants and oil super major British Petroleum having halted transit via the Red Sea-Suez Canal route after the attacks, the latest Freightos data said.
The disruption assumes significance as Bab-el-Mandeb Strait, which connects the Mediterranean Sea to the Arabian Sea via the Red Sea and the Suez Canal, is vital for 30 per cent of global container traffic and India relies on the route to trade with parts of West Asia, Africa, and Europe.
Reports suggested that a majority of the insurance companies have refused to cover shipments crossing the Red Sea after Yemen-based Houthi militants hit a Liberian-flagged ship Palatium III with an anti-ship ballistic missile, with some insurers starting to levying a $5,200 war risk surcharge over and above the freight charges.
Speaking on the impact of higher freight costs via the Red Sea and the Suez Canal, Madhavi Arora, Lead Economist, Emkay Global, highlighted how it will affect the oil, gas, auto, chemicals and logistics industry.
“For India, oil, gas, bulk of crude and LNG come through the Persian Gulf. Hence, the Red Sea issues won’t hamper those flows much. However, Russian oil flows from the Black Sea, which may be affected and rerouted,” Arora said.
For the auto industry, Arora said the freight costs may increase marginally for export-oriented companies. Delay in shipments may not have as severe an impact as during the chip shortage crisis as channel inventories have largely normalized, she said.