Business & Industry

Navigating International Sea through Disruptions

The crisis in the Red Sea, which carries 12% of World Trade, began with the Israeli aggression in Gaza in October 2023. It was followed by a retaliation on Red Sea shipping by Yemen’s Houthi rebels from December 2023. They said that they would stop attacks on ships serving Israeli & its coalition ( India is perceived to be its partner) interests, only when civilian attacks in Gaza stopped. India stepped up its monitoring of the area, with 2 ships in Red Sea and 10 ships in Arabian Sea and could save 110 lives , including 45 Indians , in the 100 days starting from 14 December, 2023. In December 2023 , USA  launched Operation Prosperity Guardian to ensure freedom of navigation in the Red Sea, and protected the ships by intercepting projectiles fired from Yemen. Physical damage has been limited and, opposite  to initial fears, the immediate economic damage has been limited. But, risk averse shipping companies take a longer route and sail additional miles around Africa, burning more fuel, raising costs and increasing travel time hugely  . This affects India , cost wise,  80% of whose European exports pass through the Red Sea at an estimated value of $14 billion. The Suez Canal has experienced a 66% fall in traffic with most vessels rerouting around the Cape of Good Hope at the southern tip of Africa. Container Costs to Europe have risen from $500 to $2500 in 6 months, wiping out exporter margins.  Insurance premiums have also risen from 0.05% to around 1%.

Similarly, Russia’s war of aggression against Ukraine has  disrupted maritime activities in the Black and Azov seas, causing the suspension of Ukrainian port operations and agricultural exports. Although an export corridor temporarily resumed activities,  Ukrainian shipping could not be normal under present circumstances. International sanctions against Russia and Belarus have  targeted ship owners and shipbuilders, restricting Russian ships’ access to OECD ports.  While global seaborne trade and ship demand remain relatively unaffected, the war has affected shipping economies here also-  altered trading routes, changes in energy demand and costs,  and to be noted, an increase in “dark fleet” vessels.

We feel, that there are no short term solutions and there is a need to develop alternate transport corridors. India –Middle East-Europe (IMEC) Economic Corridor, signed last year in G20 Summit, could be one, on implementation. The first transit of Russian goods to India using ‘The International North-South Transport Corridor’ was done in 24 days, on 11 June 2022, which is much less than the Suez Canal route. This includes three possible routes, all of which involve the Caspian Sea.  The INSTC initiative would prove to be a stable alternative transit corridor not only for trade with the Eurasian Economic Union (EAEU) but also with Europe. The Chennai-Vladivostok  Shipping  Transport Corridor has some potential, but it is in discussion stage only.  Now , it is important that we  build new shipping routes , which are free from drone attacks, to help our exports grow.

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