The ongoing crisis and security risks in the Red Sea region will have a varying impact on Indian global trade depending on industry and sector specifics, according to a report by Indian rating agency Crisil released on Monday, January 29.
Increasing attacks on ships sailing in the Red Sea region since November 2023 have forced shippers to consider the alternative and longer route around the Cape of Good Hope. This has not only stretched delivery times by 15-20 days, but has also increased the transit cost substantially because of incremental freight rates and insurance premiums, the report said.
Players in the capital goods sector could be impacted by a sustained disruption in the trade route due to delays in deliveries, which can lead to an inventory build-up and slowdown in order conversions for engineering, procurement, and construction companies, it said. For certain import-dependent players which source end-products and/or key raw materials/intermediates, the impact of the ongoing crisis will be limited given the current lean consumption period and sufficient inventories, the report said.
“It is not that the impact of the Red Sea crisis will be negative for all sectors. In fact, for some sectors, it will offer tailwinds. Shipping companies and freight forwarders will benefit from higher charter rates, after a year of steep falls due to slowing global trade,” said Crisil said in the report.