Indian exports have started taking a hit amid logistical disruptions following the US-Israel attack on Iran, Indian industry representative bodies and exporters said in a communication to their government on Tuesday, March 3.
Industry bodies said that the war in the Middle East has disrupted key shipping corridors, pushing up marine insurance premiums and increasing freight rates, affecting outbound traffic to the US and Europe.
“Air routes have been disrupted or altered, maritime trade through West Asia and the Strait of Hormuz faces risks and uncertainties,” S C Ralhan, president of the Federation of Indian Export Organisations (FIEO), said.
“If the war is prolonged, shipping lines will be forced to re-route via the Cape of Good Hope, adding an estimated 15-20 days of transit time to Europe and the US and resultant additional costs for exporters,” he said.
Shipping companies Maersk, Hapag Lloyd and CMA CGM are rerouting vessels around Africa, away from the Suez Canal and the Bab el-Mandeb Strait following the US-Israel attack on Iran and subsequent Iranian retaliatory military strikes targeting several US military bases in the Middle East, including in Qatar, Kuwait and the United Arab Emirates (UAE).
India is heavily reliant on the Bab-el-Mandeb Strait for crude oil and LNG imports and trade with key regions. The trade route via the Bab-el-Mandeb Strait, the Suez Canal and the Red Sea is shorter and faster than the Cape of Good Hope route, making it the preferred option for most shipping companies.
The route starts from major Indian ports like Mumbai, JNPT or Chennai, heads westward through the Arabian Sea, enters the Red Sea, and navigates through the Suez Canal into the Mediterranean Sea. From there, ships can reach various European ports, depending on their destinations.
Approximately 65 percent of India's crude oil from countries like Iraq, Saudi Arabia, and others passes through the Suez Canal. It is a key route for exports and imports from Europe and North Africa.
SteelOrbis has learned from sources in shipping companies that cargo and protection indemnity (P&I) covers have already been cancelled in some cases and may be re-issued only after renegotiations of premiums as existing rates are no longer valid against the backdrop of higher risk profiles of shipments along routes in West Asia.
The sources said that war-related risk premiums, currently averaging around 0.25 percent of a vessel's value, are expected to rise to over 0.5 percent, and for large vessels this could mean an additional $200,000 or more per voyage.
“In some cases, cover for the new risks may not be available at all. This will have serious economic trade implications for Indian importers and exporters,” one source said.