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   Vol. 23 No. 4
Thursday February 1, 2024

India Sees Red As Horn Goes At Midnight

Red Sea India Challenge

Air cargo forwarders in India are worried about what is happening on the Red Sea. The disruption caused by the Red Sea crisis will, in all probability, see carriers raising airfreight rates any day. And that, at this moment, would spell challenges not only for forwarders and exporters but also the air cargo sector in the country.
     Yemen’s Iran-backed Houthi militants have been attacking vessels moving through the Red Sea. In fact, Indian Navy ships have been stationed in the region to ward off attacks. Even so, the crisis has not only seen a huge boost in container shipping rates, it has also forced exporters to cut down and even hold back on shipments. According to New Delhi-based thinktank Research and Information System for Developing Countries, India could well see a loss of USD$30 bn from its total exports in the current fiscal year. The study by the thinktank points to a Ajay Sahaia 6.7% drop in Indian exports, based on last fiscal year’s $451 bn total. Ajay Sahai, (right) Director General of the Federation of Indian Export Organizations (FIEO), has gone on record to say, that “in many cases, both buyers and exporters are also renegotiating contracts to adjust to surging freight charges”. Today, a 40-foot container from Asia to northern Europe costs around $4,000, a 173% jump from just before the diversions started in mid-December, according to Freightos.com, and rates from Asia to North America’s East Coast have risen 55% to $3,900 for a 40-foot container.
     The crisis has prompted the government to constitute a high-level committee to study and identify alternative trade opportunities from markets remaining largely untouched by the Red Sea problems.
Shesh Kulkarni      Though the Red Sea problem has not had any effect yet, Indian forwarders are readying themselves for rising freight rates. Shesh Kulkarni, (left) Managing Director, Noatum Logistics – India (Noatum Logistics is a leading supply chain management company with global coverage) pointed out that while the tonnages of air freight from India has not yet started going up with shippers shifting to air from sea, “it is important to see this in a larger perspective. Europe has just about started to open post-Christmas and New Year holidays. The volumes will start showing moving only in the latter part of February, as many of the retail stores have built inventory and their stock for January.”
     Keku Bomi Gazder, Managing Director & CEO, Aviapro Keku Bomi GazderLogistic Services Pvt. Ltd., said: “The disturbance in Red Sea maritime traffic hasn’t yet had a significant impact on air cargo, as indicated by the latest data from the TAC Index. Despite a notable decrease during the Christmas to New Year period as the peak season concluded, the overall Baltic Air Freight Index experienced an additional 6.6% drop in the week ending January 8, resulting in a 31.8% decline over the past 12 months.”
     Gazder went on to say that “the conflict, meanwhile, has created an opportunity for increased air cargo charter business as shippers and forwarders have looked at securing alternative transport for at-risk shipments.”
     Shesh Kulkarni was, however, quick to caution that if the Red Sea crisis continues, “the problems will be multi-fold.” He detailed them saying that the transit time by sea to Europe will go up leading to a rise in ocean freight rates. Consequently, “the demand for air freight increases will impact both the capacity and freight rates.” The picture, he said, “will be a lot clearer in the latter half of February. But for now, everybody is waiting—with caution”.
     Gazder cautioned that the ‘Red Sea problem’ could have significant implications for air cargo operations, affecting security measures, logistics planning, trade routes, and overall business confidence. He said, “Air cargo plays a critical role in maintaining the efficiency of global supply chains. Any disruptions in the Red Sea region could have a cascading effect on supply chains, impacting the timely delivery of goods. This could lead to increased costs for inventory management, affecting businesses that rely on just-in-time supply chain practices.”
     He also added that geopolitical tensions in the Red Sea region could well lead to heightened security measures at airports, affecting air cargo operations. Stricter security protocols could result in longer processing times, increased paperwork, and additional costs for compliance, impacting the overall efficiency of air cargo transportation.
     Additionally, security concerns or conflicts in the Red Sea area may prompt airlines to reroute flights or avoid certain airspace and airports. Air cargo, being an integral part of global supply chains, may experience disruptions, affecting the timely movement of goods and potentially leading to increased costs for businesses.
Tushar Jani     Tushar Jani, Group Chairman, Cargo Service Center which operates cargo terminals in Delhi, Mumbai, Ahmedabad and Chennai, speaking to FT, said that the Red Sea problems could see a small growth in air cargo. “The current trouble in the Red Sea,” he said, “will increase air cargo volume.” But, he pointed out, that “if the airlines increase freight rates (at this time), then it will become counterproductive.”
     An avid supporter and an active proponent of the development of India’s air cargo sector, Jani said that “the industry must work towards maintaining a reasonable rate to achieve good growth. This will enable the supply chain to remain more productive and stable.”
     He went on to say that “in 2023, India had witnessed marginal growth with the increase of air cargo throughput of 6.5 MMT. However, the growth has not been significant due to the recession in Europe and a slowdown in the U.S. -- both the European Union and the US are India's major trade partners. Indian imports from China have reduced by about 18 percent. India's exports to Africa have also reduced slightly. Overall, this impacted the growth of air cargo throughput.”
Tirthankar Ghosh

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