Global Container Freight Rates Surge 150pc Amid Red Sea Disruptions
Chennai: Global container freight rates have increased 150 per cent in the past 45 days due to the disruptions in the Red Sea. This along with the rerouting of ships has increased the freight cost by 25 to 30 per cent for companies dealing in international trade.
Around 25 per cent of India's foreign trade logistics is through the Suez Canal, with key products such as crude oil, auto and auto ancillaries, chemicals, textiles, and iron and steel being affected. The route constituted 40 per cent of the total oil imports and 24 per cent of the total exports from April to October 2023.
The continuing disruption in the Red Sea has increased the freight cost globally by 150 per cent in the past 45 days. The Global Freight Index has gone up from 1341 points as of December 22, 2023, to 3354 points on February 6, 2024.
Moreover, major shipping lines have rerouted vessels around the Cape of Good Hope, which has increased time and costs, impacting both exports and imports. This detour adds 12-15 days to voyages on a business-as-usual basis; however, there could be a further delay owing to any sudden operational challenges. This detour is directly translating to a higher operational cost, along with freight and insurance and intermittent disruptions on account of ship size and cost dynamics
This will raise the freight and forwarding cost of companies by 25 to 30 per cent. The working capital cycle is also likely to increase by 15 to 20 days and the impact could be higher in agricultural products and textiles. Sectors like iron and steel, auto and auto ancillaries, chemicals, and textiles will have to go for higher borrowing.
On the import side, vital commodities such as crude oil, fertilizers, and electronic components face inflated costs due to the crisis, leading to higher landed prices and inflationary pressures and impacting various sectors of the Indian economy.
“The challenge is significant for the entities having low value addition, therefore thin margins. Although large entities have adequate elbow room to accommodate such incremental costs, delays and disruptions in supply chains will be key factors to watch for. For medium-sized entities, the challenge is on both cost and supply and working capital cycle,” said Soumyajit Niyogi, Director, Core Analytical Group, Ind-Ra.
