Pakistan’s Exporters Worried about Shipping to EU and US Amid Heat along the Red Sea
Published on: January 18, 2024.
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The recent disruption in trade along the Red Sea route is causing major challenges for Pakistan’s export industry. Export shipments destined for Europe and the US are experiencing a significant increase in costs due to maritime attacks by Yemen’s Iran-aligned Houthis. These attacks were carried out in support of Palestinians during the Israeli aggression in Gaza. As a result, some shipping companies are now opting to take a longer detour around southern Africa rather than using the usual route between Asia and Europe.
One of the first sectors to be affected by this disruption is perishables, particularly fruits and vegetables. Pakistan exports mandarin (Kinnows) to certain areas in Europe, and these shipments are being impacted by the change in route. The journey now includes a detour via the Cape of Good Hope, adding approximately 3,500 kilometers to the distance traveled. The increased travel time of around 66% raises concerns about the potential impact on the quality of these perishable goods. If the crisis in the Red Sea continues, exporters may choose to abstain from exporting potatoes in the upcoming season.
It’s not just fruits and vegetables that are facing challenges. Textile and rice shipments are also affected. Rice exporters have been incurring losses as shipping companies have raised freight charges by a massive 140%, from $750 to around $1,800. Rice is primarily exported to East Africa and Europe, making this change in route particularly detrimental to the industry. Despite these obstacles, Haseeb Ali Khan, Senior Vice Chairman of the Rice Exporters Association of Pakistan, remains positive about reaching a $3-billion export mark for rice in the ongoing fiscal year.
The increased transit time, rising freight charges, and additional war risk insurance premiums are creating significant hurdles for businesses in Pakistan. The textile sector, which plays a crucial role in the country’s exports, is also grappling with similar issues. The European Union (EU) is the most significant export destination for Pakistan, with over one-fourth of the country’s exports heading to the European market. Pakistan enjoys a trade surplus of $4 billion with the EU, and its exports to the US totaled $6 billion in 2022.
The effects of this trade disruption go beyond Pakistan’s exports. Captain Asim Iqbal, an expert on maritime trade, explains that the longer voyages and increased ship speeds to reduce delays have led to a significant increase in fuel costs, costing tens of millions of dollars each month. This situation has also resulted in a shortage of equipment, which will cause spot rates to rise in all export trades out of Asia, not just those going around Africa.
Overall, Pakistan’s export industry is facing considerable challenges due to the disruption in trade along the Red Sea route. The increased costs, longer transit times, and insurance complications are impacting various sectors, including perishables, textiles, and rice. It remains to be seen how the situation will unfold and how businesses will adapt to these changes in the global shipping landscape.
