Global Trade Faces Strain as Red Sea Shipping Disruptions Impact Supply Chains
Published on: January 29, 2024.
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GTRI Warns of Prolonged Disruptions at Red Sea Trade Route, Impacting Various Sectors
The Global Trade Research Initiative (GTRI) has issued a warning about prolonged disruptions at the vital Red Sea trade route, which could have adverse effects on several industries. Sectors such as electronics, automobiles, chemicals, consumer goods, and machinery are particularly at risk. GTRI has expressed concern about the impact on companies that rely on just-in-time manufacturing processes, as they have low inventory levels and depend on timely component arrivals.
Key Industries Affected
GTRI has identified several key industries that are likely to experience setbacks in production. These industries include electronics, automotive, machinery, chemicals, pharmaceuticals, plastics, textiles, and consumer goods. The Suez Canal, an essential passage for shipping components and finished products to global markets, could experience delays, leading to increased manufacturing costs.
Disruptions in the Red Sea
Disruptions in the Red Sea, specifically attributed to attacks by Houthi rebels on commercial ships, have complicated global supply chains. Vessels are now forced to take longer routes for exports and imports. This situation has resulted in immediate effects such as rising freight costs, mandatory war risk insurance, and significant delays.
Potential Consequences
Ajay Srivastava, co-founder of GTRI, has highlighted that if disruptions persist, the adverse impact could extend beyond trade and affect local production in industries that rely on just-in-time procurement. Average container spot rates have already more than doubled since December 2023.
Observable Effects
The consequences of the disruptions are already evident. Basmati rice exporters, for example, have experienced a 233% increase in freight costs per 20-tonne container. Other affected sectors include life-saving drugs, textiles, diesel, aviation turbine fuel (ATF), and steel.
Concerns and Suggestions
Exporters have expressed concerns about the potential continuation of the crisis, fearing a detrimental effect on the country’s overall trade. SK Saraf, a Mumbai-based exporter, has suggested that India should consider establishing a significant domestic shipping company to reduce its dependence on foreign shippers.
Changes in Shipping Routes
To avoid attacks, major shipping firms, including Maersk, MSC, Hapag-Lloyd, and CMA CGM, have stopped using the Bab al-Mandab straits for trade with Europe. Instead, ships bound for Europe will now navigate a longer route around the Cape of Good Hope. This change increases voyage distances by 40% and raises transportation costs.
Vulnerabilities in the Bab-el-Mandeb Strait
The Bab-el-Mandeb Strait, also known as the ‘Gate of Tears,’ plays a vital role in connecting the Mediterranean Sea and the Indian Ocean. Recent attacks and disruptions have highlighted the vulnerability of this strait, impacting 30% of global container traffic.
Impact on Indian Ports
The closure of the Red Sea trade route poses a challenge for Indian ports, including Mumbai, JNPT, and Chennai. These ports heavily rely on this route for trade and energy imports. As tensions and disruptions escalate, India is now faced with the need to diversify its trade routes.
(Source: [Republic World](https://www.republicworld.com))
