Currently, 25% of
India's outbound shipments are held back.
By Girish Linganna
Mounting stress in the Red Sea—the direct trade route for ships travelling from Asia to Europe—has hit India's exports of marine products and also high-quality rice to buyers in the United States, Middle East and Europe as prices have skyrocketed.
This very serious bottleneck that has been gripping India's maritime trade for weeks now is the Red Sea crisis! It is also known as the United States-Iran proxy war that began on October 19, 2023, when the Houthis from Yemen launched a series of attacks targeting southern Israel and ships traversing the Red Sea that it claimed were related to Israel.
According to CRISIL Ratings, India depends significantly on the Red Sea route through the Suez Canal for its trade with the Middle East, Europe, North America and North Africa. These regions account for about 50% of India's exports of INR 18 trillion ($217bn) and about 30 per cent of imports of INR 17 trillion ($205bn) in the year ended March 2023.
Now, all of this trade has been hit. And the reason? Ships are avoiding the Red Sea route. Rather than taking the Suez Canal route, they are taking a longer course via the southern tip of Africa, around the Cape of Good Hope, adding an extra 6,500 kilometres and nearly two more weeks to the journey. So, Indian shipments are getting delayed and traders accruing losses. Moving goods from one place to another has increased considerably. Shipments are getting delayed by almost a month. Some ships have also been restrained from leaving dock.
In fact, since the Red Sea crisis began, 25% of India's outbound shipments—exports sent directly through warehouses—were held back. The main reason was that exporters could not find ships for them and those who did find ones had to follow a longer course. About 95% of cargo ships from India have taken this much longer Africa route and they will continue to do so in the foreseeable future as there is no resolution in sight.
India, which is the largest exporter of rice worldwide, is responsible for approximately 40% of global rice shipments and supplies to over 150 countries. Due to a ban imposed by New Delhi in July 2023 on exports of white rice and broken varieties, around 30% of India's shipments—equivalent to 12% of the global trade—were impacted. However, certain exceptions were made to accommodate the food security concerns of other nations.
India's exports of basmati rice are facing more difficulties due to the rising cost of transporting goods during the Israel-Gaza conflict. This, along with shortages of other types of rice in the country, will, possibly, worsen global rice shortages. Last month, exports of high-quality Indian basmati rice were only half of what they were a year ago. Traders are pointing fingers at the doubled freight rates, which increased due to attacks on commercial ships by Iran-backed Houthi militants.
In recent times, tensions have escalated in the Middle East as Houthi forces have targeted US and other entities in the Red Sea, resulting in disruptions to global shipping. On January 29, Hamas demonstrated their capability to persistently carry out attacks by firing a series of rockets into Israeli cities. This occurrence took place following a gap of several weeks, showcasing their ability to continue launching assaults despite the ongoing Israel-Hamas war that has been ongoing for nearly four months.
The situation in the Red Sea is worsening and a prompt solution is not expected, even with the intervention of the United States to halt Houthi attacks. People are adopting a cautious approach and only exporting limited quantities, Vijay Setia, former president of the All-India Rice Exporters' Association was quoted by South China Morning Post (SCMP) as saying.
The Middle East is a significant market for India's basmati rice exports. However, according to Setia as told to the media, the duration required to transport goods from India to the region has increased by three to four weeks due to the recent increase in violence in the Red Sea. Setia was quoted by the media as having said that exports of basmati rice from India was now a challenge for shipping companies since freight costs have shot up five times higher with a rise in insurance premiums, container shortages and longer transit times.
Some consignments are lying at different ports or processing units, while some stock is now being sold in the domestic market, resulting in a fall in prices by about 8% in the local market. India ships more than 4.5 million tons of basmati rice out of the country annually. About 35% of about 7.5 million tons of production is shipped to Europe, North America, North Africa and the Middle East through the Red Sea.
Traders indicate that the current price range for Indian basmati rice is approximately US$950 to $1,800 per ton. In contrast, the price of parboiled rice exported from India, which undergoes partial boiling in the husk before being sold, has reached an all-time high—ranging from US$533 to US$542 per ton. This surge in price is attributed to limited supplies and consistent demand from Asian and African buyers.
The state-run Food Corporation of India's purchases from rice farmers have significantly depleted stocks available to private traders. As the nation is gearing up for the upcoming Lok Sabha elections in India, private traders anticipate that more supplies will be retained within the country to control domestic prices. Throughout history, food inflation has been a crucial concern for Indian voters.
SCMP quotes PremGarg, national president of the Indian Rice Exporters' Federation, as saying that the limited quantities available to private traders, along with longer shipping times and higher freight costs to certain regions in Africa and other places, are also affecting India's exports of non-basmati rice varieties. Increased shipping costs have led to disagreements between exporters and buyers as they strive to negotiate their contracts.
Garg mentioned to SCMP that there were disputes arising from previous contracts with buyers, as many individuals are seeking to cancel orders. He further stated that the cost of reserving a single container on ships heading to Africa has tripled, reaching a value of US$4,000.
The rising tensions caused by Houthi rebels and their attack on a fuel tanker a few days ago, pushed benchmark Brent crude futures to just above US$80/barrel. Despite some problems with logistics, OPEC producers have not yet implemented significant cuts in output, which has helped keep oil prices stable. As a result, there is still a substantial supply of oil available. OPEC producers' gradual reduction in output has helped maintain stable oil prices, as there is still a strong supply available to global markets despite some logistical challenges.
The World Bank has stated that dry conditions caused by El Nino, characterized by unpredictable rainfall, are posing a threat to major rice-producing regions. However, the World Bank also mentioned that the stabilization of prices could be facilitated by India relaxing its ban on the export of certain rice varieties.
Executives in the industry do not expect India to ease restrictions on rice exports until after the elections, which are tentatively scheduled for April/May. Another factor affecting this decision is the monsoon, which normally brings around 70% of India's annual rainfall and can impact the availability of water for agriculture, including rice production.
(IPA Service)
(The author is a Defence,
Aerospace & Political Analyst based in Bengaluru.)
