Shipping Costs Could Rise By 10-30% Amid Red Sea Crisis

Shipping costs might escalate in the coming days, amid rising costs of insurance, longer plying time and lower container availability. That is if the attacks on shipping vessels in the Red Sea are not brought under control.

Attacks from the Houthis on shipping vessels have increased in response to the war in Gaza. These attacks are taking place in the Red Sea—one of the most critical trade routes globally and are posing risks to supply chains. Ships are being targeted by drone and missile attacks because of which seven out of 10 companies have said that they will not be taking the Red Sea route.

"If the situation persists, freight rates are likely to go up by 25-30%," according to Ajay Sahai, director general of the Federation of Indian Export Organisations.

"A lot of oil exports happens through the Red Sea, along with exports to Saudi Arabia and Europe being routed from here," Sahai said. If the situation persists then the freight rates will go further up, he cautioned.

Arun Garodia, chairman of the EEPC also said that if the situation is not brought under control soon, it would mean extra shipping time and a rise in freight rates. “Prices can rise by 10-20% and if the problem persists, it can go to any extent.”

The companies plan to now ply via the Cape of Good Hope, meaning longer shipment time. As such, there will be fewer containers available, driving prices further up, said Garodia.

If ships are not plying, then Indian exports to Saudi Arabia, Europe and the U.S. may get affected, said Sahai. "Already, we have been given to understand that as of now the insurance premium for ships has gone up," he said. A surcharge has been added for ships going through the Red Sea route by insurance companies. A little disruption in trade is definitely on the cards, he said.

To be sure, the situation might normalise sooner than expected. The U.S. has formed a 10-member coalition to tackle the attacks. It appears unlikely that the Houthis can take the whole world by ransom, said Garodia.

"Since the U.S. has formed a coalition, we expect the situation to normalise quickly," Sahai said. If that happens, it will help trade. Otherwise, there is no certainty as of now, he said.