Prolonged disruptions at the critical Red Sea trade route pose a threat to manufacturing processes in sectors such as electronics, automobiles, chemicals, consumer goods, and machinery, cautioned the economic think tank GTRI on Sunday. The Global Trade Research Initiative (GTRI) highlighted that industries relying on just-in-time manufacturing could be particularly vulnerable due to their low inventory levels and dependence on the timely delivery of components and finished products.
The Global Trade Research Initiative (GTRI) emphasized that disruptions in global value chains could impact the production of several industries, including electronics, automotive, machinery, chemicals, pharmaceuticals, plastics, textiles, and consumer goods. The Suez Canal is a crucial route for shipping components and finished products to various markets, and any disruptions may lead to manufacturing delays and increased costs.
Ongoing attacks by Houthi rebels on commercial ships in the Red Sea, the world's busiest shipping route, have resulted in disruptions to global supply chains. Vessels are forced to take longer routes for exports and imports, leading to increased freight costs, mandatory war risk insurance, and significant delays.
GTRI co-founder Ajay Srivastava warned that the adverse impact would escalate if the disruption continues beyond a few more weeks, affecting not only trade but also the local production of industries relying on just-in-time procurement from global value chains spanning Europe and Asia. Average container spot rates have more than doubled since early December 2023, he noted.
Basmati rice exporters are grappling with soaring freight costs, with a 233% increase to USD 2,000 per 20-tonne container for destinations around the Red Sea, according to Srivastava. Sectors facing issues include life-saving drugs, textiles, diesel, ATF, and steel.
Exporters express concerns that if the crisis persists, it will have a detrimental impact on the country's trade. Mumbai-based exporter SK Saraf suggested that India should consider establishing a significant domestic shipping company as the nation currently depends entirely on foreign shippers.
Recent reports have linked increased attacks by Yemen-based Houthis on commercial ships to the Israel-Hamas conflict in October last year. The Houthi group has been using drones and rockets on ships navigating the Strait of Bab al-Mandab, a critical shipping route connecting the Mediterranean Sea to the Indian Ocean