India must strengthen shipping capacity, naval protection: GTRI

With growing shipping chokepoints, India must treat maritime insecurity as a persistent trade risk and strengthen its domestic shipping capacity, trade finance, naval protection and alternative transport corridors, economic think tank GTRI said on Sunday.

It said that the Red Sea crisis has completed 1,000 days without a durable solution, showing that military action can intercept missiles but cannot restore commercial confidence.

For India, it said, the crisis has made trade with Europe, the UK, North Africa and the US East Coast slower and more expensive, hurting MSME exporters through higher freight, insurance and working-capital costs.

“As shipping chokepoints are growing, India must treat maritime insecurity as a continuing trade risk and strengthen domestic shipping capacity, trade finance, naval protection and alternative transport corridors,” GTRI Founder Ajay Srivastava said.

The Red Sea is a vital maritime link between the Indian Ocean and the Mediterranean Sea, with ships travelling from Asia through the Arabian Sea, Gulf of Aden, Red Sea and Suez Canal before entering the Mediterranean.

The route connects major trading regions, including India, the Middle East, North Africa and Europe, and passes close to countries such as Yemen, Djibouti, Eritrea, Saudi Arabia and Egypt.

For Indian exporters, the route was significantly disrupted from November 2023, when Yemen-based Houthi forces began attacking commercial cargo ships in the Red Sea and the Bab el-Mandeb Strait in support of Palestinians amid the Israel-Hamas war.

The attacks forced major shipping lines to avoid the Red Sea and Suez Canal and reroute vessels around the Cape of Good Hope (encircling the African continent), adding thousands of nautical miles to the journey and significantly increasing transit times, freight costs and insurance premiums for India-Europe trade.

The GTRI said that the Red Sea shipping crisis completed 1,000 days on August 15.

“What began as a regional security problem has become a long-term disruption to global trade,” it said, adding that the wider US-Israel-Iran conflict has added to the uncertainty by threatening other important shipping routes in West Asia.

Major container companies continue to send much of their Asia-Europe and Asia-US East Coast traffic around Africa’s Cape of Good Hope.

It said that Suez Canal traffic remains 60-70 per cent below its pre-crisis level, and the diversion around Africa absorbs an estimated 5-7 per cent of global container capacity and adds 10-14 days to many voyages.

“Freight rates remain about 25-40 per cent above normal levels, while ships also face war-risk insurance charges. This two-route system - Suez for some ships and the Cape for others -could continue into 2027,” it said.

Around 80 per cent of India-Europe merchandise trade normally uses the Red Sea route. Markets served through this corridor account for about half of India’s exports and 30 per cent of imports.

The most exposed markets are the UK, Germany, the Netherlands, Belgium, France, Italy, Spain, Greece, Egypt, Israel, Jordan, North Africa and the US East Coast.

The US West Coast is less affected because most cargo travels across the Pacific. Trade with the UAE, Oman and Qatar does not require the Suez Canal, but it still faces higher insurance costs and wider regional security risks.

“At the worst points of the crisis, freight rates on some India-Europe and India-US routes increased by 200-400 per cent. Longer voyages raised fuel, freight, insurance and inventory costs. They also delayed payments and blocked exporters’ working capital for additional weeks,” Srivastava said.

He added that MSME exporters suffered the most and goods such as garments, engineering goods, chemicals, leather, carpets, rice, spices, grapes and marine products, often having low profit margins, cannot easily absorb higher freight costs.

“The 1,000-day milestone is more than an anniversary. It shows that shipping disruptions caused by wars can continue longer than business contracts, Government support programmes and normal inventory cycles,” he said.

He suggested that India should treat maritime insecurity as a recurring risk to international trade, not as a temporary problem.