The Red Sea issue and what it meant for India Inc
The Red Sea crisis, also known as the U.S.-Iran proxy war, originated from Houthi rebels’ attacks on Israel in October 2023, causing significant disruptions to global trade via the Red Sea. This includes attacks on commercial vessels, leading to:
Increased shipping costs:
Ships are taking longer routes, raising fuel consumption and operational costs.
Delays in delivery
Rerouting adds significant time to shipments, impacting supply chains and potentially leading to shortages.
Higher insurance premiums
War risk insurance for the Red Sea has soared, adding to costs for businesses.
The potential for further escalation remains, which could result in the shutdown of key trade routes, leading to price increases and economic instability worldwide. It’s important to note that the situation is ongoing and its full impact on global trade is still unfolding. However, the potential for significant disruptions and economic consequences remains high.
Key point to note: The crisis predominantly affects trade between Europe and Asia, with India particularly vulnerable – with a large portion of its trade reliant on the Red Sea.
India Inc – In Q3 2024 management discussion calls, the term ‘Red Sea’ was mentioned 48 times, primarily impacting industries such as Mining and minerals, Manufactured products, chemicals, plastics and rubber materials. Discussions revolved around:
Increased freight costs
Affecting export-oriented industries, notably steel, pharmaceuticals, and oil. 2. Delays in deliveries due to rerouting, especially impacting exports. 3. South African coal offered at discounted rates due to EU delivery disruptions, benefiting Indian industries.
Delays in deliveries
Due to rerouting, especially impacting exports.
South African coal offered at discounted rates
Due to EU delivery disruptions, benefiting Indian industries.
As of Q3, the impact on most companies is marginal, with ongoing monitoring for potential future actions.