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Red Sea Trade Crisis Causes Surge in Freight Charges in Pakistan

A container ship crosses the Gulf of Suez towards the Red Sea, in Al-‘Ain al-Sokhna, in Suez, Egypt, July 30, 2023. PHOTO: REUTERS

The recent Red Sea trade crisis has had a significant impact on freight charges in Pakistan, resulting in a staggering 150% increase. This surge in costs poses a serious threat to the country’s major export commodities, including textiles, rice, and fruits and vegetables.

In a press conference held on Tuesday, Aasim A Siddiqui, Chairman of the All Pakistan Shipping Association (APSA), revealed that average freight charges have skyrocketed from $1,500 per container to $2,500 per container in the aftermath of the maritime trade crisis along the East-West route.

Prior to the crisis, the charges were around $1,000 per container. However, due to the conflict involving the Houthis in Yemen and cargo vessel attacks in response to Israeli aggression on Palestinians in Gaza, the extended travel routes via Africa have become necessary to avoid the crisis.

As a result, delivery times have increased, empty container shortages have emerged, and demurrages have been incurred in various countries, including Pakistan.

“The surge in freight charges can be directly attributed to the tension in the Red Sea. There is no other excuse,” Siddiqui stated, refuting allegations that shipping companies were solely responsible for the substantial hike in costs. He explained that the new travel routes via Africa take three weeks to reach the destination compared to the original one-week journey through the Red Sea. This extended time has led to container shortages, contributing to the rise in freight charges.

The crisis has reached a point where freight charges have now surpassed the export price of rice, which is Pakistan’s second-largest export. Additionally, the export of textiles, the country’s largest sector, as well as vegetables and fruits, including mandarin (kinnow), are at risk.

Facing Challenges in Container Clearance

Siddiqui emphasized that all stakeholders, including seaports, terminal handlers, and shipping companies, have been charging demurrage due to delays in container clearance from ports. He acknowledged that each company has a different rate of demurrage on the delay, which helps create healthy competition among the companies. If any company charges unreasonably high rates, importers and exporters have the freedom to switch to other companies. Ultimately, companies charging unjustified fees would lose clients, he explained.

Approximately 18 to 20 foreign shipping companies operate in Pakistan, transporting trade cargo worth over $70 billion annually for local importers and exporters.

Siddiqui stressed the need for reforms in the maritime trade policy to address the challenges faced. He suggested focusing on resolving issues related to Afghan transit trade instead of suspending the entire trade to Kabul via Pakistan, as a means to control smuggling of goods from Afghanistan. While acknowledging the potential involvement of some traders in smuggling, Siddiqui recommended cracking down on those engaged in illegal activities rather than shutting down transit trade entirely. The policy regarding Afghan transit trade is determined by the state, and the government decides on the closure or opening of Pak-Afghan borders. Shipping companies involved in Afghan trade operate in compliance with the law, he assured.

Despite amendments in the maritime trade policy after 20 years, Siddiqui expressed disappointment that the APSA was not consulted.

He appealed to the government to release the 10,000 containers stuck at the port due to issues pending since the Covid-19 pandemic. Furthermore, an additional 1,000 containers involved in suspended Afghan transit trade are causing financial losses.

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