Delay, cost escalation likely in India's trade via Suez Canal: ICRA

The conflict has resulted in a 122-per cent increase in freight cost in the past couple of months. As a result, majority of the global container shipping companies are deciding to avoid the Suez Canal and instead take the longer route around the Cape of Good Hope.

While a gradual rise in freight rates would have been easier to pass on to buyers, the recent spike may affect profitability, ICRA notes.

India uses the Suez Canal route for trade with European countries, North Africa and North and South America, which account for more than 35 per cent of the total foreign trade for India.

Exports of agricultural commodities, being perishable, will involve risk of spoilage, loss of freshness and quality because of the delay in transport.

For oil import, the Middle-East and Russia account for majority share, which is not affected at present. However, oil imports to India from West Africa, North America, etc (forming a smaller share) passing through the Suez Canal have been hit.

Impact on some sectors like general insurance may not be significant because of the reinsurance agreements and smaller share of marine insurance.

The intensity of the issue may differ from sector to sector depending upon the share of import/export to affected countries like Europe and North and South America, as well as the ability of the entities to deal with delay in transit and additional freight cost, ICRA adds.

Fibre2Fashion News Desk (DS)