Middle East Crisis: Impact on Indian Shipping and Supply Chains

1. The ongoing conflict in the Middle East, particularly involving Iran, has triggered significant disruptions in global shipping, leading to a doubling of shipping rates in September 2024.
2. In response, the Indian government is taking measures to enhance its shipping fleet and enhance domestic container manufacturing capacity to mitigate potential economic impacts.

Key Developments

1. Reports indicate that shipping rates have more than doubled in September 2024 due to the escalating conflict.
2. There is a clear recognition at high levels of government regarding the need to enhance the shipping fleet and improve container manufacturing capabilities.
3. Interministerial efforts involving the ministries of commerce, shipping, and finance are currently underway.

Economic Context

1. India’s exports currently stand at $450 billion.
2. Officials indicate that India is entering a crucial growth phase where fleet and container capacity building will be essential.

Potential Impact on Exports

1. The widening conflict, especially with Iran's involvement, could adversely affect Indian exports of low-margin, high-volume products like textiles.
2. This concern is heightened as exporters are increasingly shifting routes to the Cape of Good Hope due to instability.
   1. The southernmost tip of South Africa's Cape Peninsula is called the Cape of Good Hope.
   2. It is known for the stormy weather and rough seas encountered there.
   3. One of the southernmost points in Africa, it is among the most famous capes in maritime history.
3. Exporters are facing challenges because foreign shipping lines are refusing to give them shipping slots as freight rates rise.

Supply Chain Stress:

According to the World Bank's Trade Watch Report, supply chain stress remained elevated through September 2024, primarily due to disruptions in West Asia, the

Mediterranean, and Asia.  Key points include:

1. Global Supply Chain Stress Index: This index surged to 1.4 million twenty-foot equivalent units (TEUs) in September, representing a 72% increase since October 2023 when renewed conflict erupted following Hamas's attack on Israel.
2. The conflict has led to carriers rerouting container vessels around Africa to avoid Houthi attacks in the Red Sea, adding approximately 6,500 kilometers and 10 days to typical shipping times.

Challenges Faced by Indian Exporters

1. Rising Transport Costs: Exporters are struggling with higher freight rates and foreign shipping lines' reluctance to handle Indian shipments.
2. In 2022, Indian traders paid over $109 billion in transport service charges, showing the economic strain on exporters.
3. Call for an Indian Shipping Line: There is a strong push from exporters for the government to establish a reputable Indian shipping line.
4. Such a move could reduce the pressure from foreign shipping companies, particularly affecting micro, small, and medium enterprises (MSMEs).

Global Shipping Landscape

1. Profit Surge for Shipping Companies: Global shipping lines, including Danish company Maersk, have reported soaring profits due to heightened freight rates amid the ongoing crisis. Maersk has raised its profit forecast multiple times since May 2024.
2. Shipping Cost Trends: While shipping costs peaked in July 2024 at levels last seen in 2022, they fell nearly 40% by September, returning to January 2024 rates, though they remain over twice as high compared to the end of 2023.

Impact of Natural Disasters

Additionally, natural events have compounded supply chain challenges:

1. Typhoons Bebinca and Pulasan: In September, these typhoons stopped terminal operations and forced containerships to anchor in Shanghai and Singapore, further contributing to supply chain stress in the region.

Key Measures Announced by the Government :

1. Charges for storing empty containers at ports will now be zero for the first 90 days; after that, the fee will be reduced from ₹3,000 to ₹1,500.
2. Handling rates for containers will drop significantly, from ₹9,000 to ₹2,000 for a 40 ft container and from ₹6,000 to ₹1,000 for a 20 ft container.
3. Acquisition of Vessel
   1. The Shipping Corporation of India (SCI) will purchase 5 additional second-hand container vessels to enhance cargo handling capacity.
   2. SCI will also charter ships to add 9,000 TEUs (twenty-foot equivalent units) to capacity.
4. The Central Board of Indirect Taxes and Customs (CBIC) announced simultaneous screening of two 20 ft containers to speed up customs clearances at ports.
5. The shipping ministry reported a recent increase of 2.3 million TEUs in port capacities to accommodate higher shipping volumes.
6. The Jawaharlal Nehru Port Trust (JNPT) committed to eliminating congestion and bottlenecks at Nhava Sheva port.
7. Private container yards will be required to register with GST authorities and are prohibited from accepting cash payments, aiming to curb illegal profiteering.
8. Shipping lines will now include all charges related to container transportation in the delivery orders provided to shippers.

Stakeholder Involvement

The measures resulted from discussions involving key stakeholders, including:

1. Senior officials from the ministries of commerce, shipping, finance, and civil aviation.
2. Representatives from the Federation of Indian Export Organisations (FIEO), customs officials, freight forwarders, and transport operators.

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