The Red Sea is a vital shipping route for India, as it's used to trade goods with Europe, the Middle East, Africa, and the US East Coast. However, attacks on commercial ships in the Red Sea by Yemeni Houthi rebels have caused global supply chain disruption and increased transportation costs for India.

The shipping industry has faced increased costs due to re-routing vessels around the Cape of Good Hope instead of the Suez Canal. For example, freight charges have increased from $250 to $1500 for some Middle East routes and $700 to $3500 for Europe. Rates from India to the US market have increased from $1,700 to $4,100, a 150% increase.

The conflict could also result in increased shipping costs (40-60 per cent) and delays due to rerouting (up to 20 days more), higher insurance premiums (15-20 per cent), and potential cargo loss from piracy and attacks.

Given the escalating nature of recent incidents in the Middle East that have threatened global trade, Indian shipping companies are raising concerns. RBB Ship Chartering, a company dealing with ship chartering services, has said that shipping costs have gone up manifold.

"These incidents in the Red Sea are a cause for concern for the shipping industry. The Europe-bound containers of cargo companies are taking the Cape of Good Hope route instead of the Suez Canal after these incidents on sea came to light. However, this re-routing of the shipping assets has led to a tripling of the transportation cost," its CEO Raajesh Bhojwani told news agency ANI.

The Red Sea remains a significant shipping route for India, as goods are traded to the US East Coast, Europe, the Middle East, and Africa through it. Suez Canal is the only waterway which allows direct passage between Europe and Asia and ships must pass through the Red Sea to access it. The other alternative is travelling through Africa, which adds around 30 days in travel time.
A substantial number of commodities, including steel, engineering goods, textiles, chemicals, vehicles, and agro-products, are exported from India to Europe and the West via the Red Sea route.

"Several insurance companies have jacked up premiums by 100 times for the ships sailing in the Red Sea while some have stopped offering an insurance cover altogether. If ships use the Cape of Good Hope route, their journey time increases by 8-10 days, leading to excessive use of fuel. The prevailing situation has put Indian exporters at risk of becoming non-competitive in other market segments," he said.

For India, which has retained its tag of the fastest-growing major economy, global trade hiccups remained a concern in 2023 amid slowing demand. The fragile geopolitical situation in the Middle East further increases the headache for policymakers in New Delhi, with one report claiming that the nation may see $30 billion shaved off its total exports in FY24.