India Needs Stronger Shipping Capacity, Naval Protection Amid Rising Maritime Risks: GTRI

New Delhi, Aug 17 (KNN) India should treat maritime insecurity as a persistent risk to international trade and strengthen domestic shipping capacity, trade finance, naval protection and alternative transport corridors, Global Trade Research Initiative (GTRI) said on Sunday.

The economics think tank noted that the Red Sea shipping crisis completed 1,000 days on August 15 without a durable resolution, highlighting the prolonged impact of disruptions on global trade.

The crisis has slowed and increased the cost of trade between India and Europe, the UK, North Africa and the US East Coast, raising freight, insurance and working-capital costs for MSME exporters, it added.

GTRI Founder Ajay Srivastava said, “As shipping chokepoints are growing, India must treat maritime insecurity as a continuing trade risk and strengthen domestic shipping capacity, trade finance, naval protection and alternative transport corridors,” PTI reported.

Red Sea Crisis Raises Trade Costs

The Red Sea is a key maritime link between the Indian Ocean and the Mediterranean, connecting major trading regions including Asia, the Middle East, North Africa and Europe through the Bab el-Mandeb Strait and Suez Canal.

The crisis intensified in November 2023 after Yemen-based Houthi forces began attacking commercial vessels in the Red Sea and Bab el-Mandeb Strait. Major shipping companies subsequently diverted vessels around the Cape of Good Hope, increasing voyage distances, transit times, freight rates and insurance costs.

With the broader US-Israel-Iran conflict adding to uncertainty and threatening other key shipping routes in West Asia, GTRI said, “What began as a regional security problem has become a long-term disruption to global trade.”

The think tank highlighted that Canal traffic remains 60-70 per cent below pre-crisis levels, while diversions around Africa are absorbing an estimated 5-7 per cent of global container capacity and adding 10-14 days to several shipping routes.

“Freight rates remain about 25-40 per cent above normal levels, while ships also face war-risk insurance charges. This two-route system - Suez for some ships and the Cape for others -could continue into 2027,” it noted.

Indian Exporters Face Higher Costs

Around 80 per cent of India's Europe-bound merchandise trade normally uses the Red Sea route, according to GTRI. Markets served through the corridor account for around half of India's exports and 30 per cent of its imports.

The UK, Germany, the Netherlands, Belgium, France, Italy, Spain, Greece, Egypt, Israel, Jordan, North Africa and the US East Coast are among the markets most exposed to the disruption.

Srivastava said, “At the worst points of the crisis, freight rates on some India-Europe and India-US routes increased by 200-400 per cent. Longer voyages raised fuel, freight, insurance and inventory costs. They also delayed payments and blocked exporters' working capital for additional weeks,” as quoted by PTI.

MSMEs Among the Most Vulnerable

MSME exporters are particularly vulnerable as many operate on relatively low margins and have limited capacity to absorb higher logistics costs, he noted, adding that sectors such as garments, engineering goods, chemicals, leather, carpets, rice, spices, grapes and marine products could face greater pressure from prolonged shipping disruptions.

Srivastava said, “The 1,000-day milestone is more than an anniversary. It shows that shipping disruptions caused by wars can continue longer than business contracts, government support programmes and normal inventory cycles.” 

He called for maritime insecurity to be treated as a recurring trade risk rather than a temporary disruption.

(KNN Bureau)