India's small exporters reel as Red Sea crisis helps rivals nab business

Kajaria Ceramics

16/02/2024 06:28

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      Re-routing of ships squeezes already thin margins 
    

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      Small firms export 40% of India's merchandise exports
    

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      Turkey, Poland gain as Indian firms' shipping costs soar
    

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      Job losses have emerged and could jump if crisis prolonged
    

  
    By Manoj Kumar and Mayank Bhardwaj
       NEW DELHI, Feb 16 (Reuters) - Atul Jhunjhunwala, an
exporter in the Indian eastern city of Kolkata, is tearing his
hair out, having just lost another order due to the Red Sea
crisis that has jacked up his shipping costs and times.
    "Last week, I lost a big order to a Polish competitor who
does not need to pay increased freight rates," said
Jhunjhunwala, head of Binayak Hi Tech Engineering which ships
about 700 containers of machinery tools, industrial castings,
and railway shed materials per year.
    Turkish exporters were also benefiting at the expense of
Indian companies, he said, adding that he has also sent some
orders on to buyers at a loss after absorbing increased costs.
    "No one can afford to lose buyers with whom we have worked
for over decades," he said.
    Missile and drone attacks in the Red Sea by Yemen's Houthi
militants, who say they are acting in solidarity with
Palestinians in the Gaza war, have forced many ocean freight
firms to re-route vessels away from the Suez Canal to around the
Cape of Good Hope on the southern tip of Africa.
    The crisis has begun to upend global supply chains, with
Chinese exporters also stumbling in pain. Many suppliers sign
export deals on a cost, insurance and freight basis, making them
responsible for any increases in freight and insurance costs. 
    In India, small exporters - who account for 40% of the
country's annual merchandise exports worth some $450 billion -
have warned that job losses have started and could soar if the
attacks, which began late last year, become prolonged.
    Even before the crisis, India's small exporters were
operating at very thin profit margins - typically between 3% and
7%, according to industry estimates.
    "Job losses are already visible in India's textile hub of
Tirupur due to the Red Sea issue in southern India where small
exporters are working at one-third of their capacity," said K.E.
Raghunathan, a Chennai-based manufacturer and national chairman
of the Association of Indian Entrepreneurs.  
    He noted that longer shipping times had led to less freight
capacity and that the scarcity of containers was becoming a big
problem for small exporters as big export houses have booked
containers in bulk. The government should help small exporters
otherwise many of them would "perish", he added. 
    Export organisations have formally sought relief from the
government which has formed a trade ministry panel to monitor
the situation and consider their requests for help.
    
    "ONE OF THE WORST TIMES"
    More than 80% of India's merchandise trade with Europe and
the United States would normally take place via the Red Sea.
India exports roughly $8 billion of merchandise to Europe a
month and more than $6 billion a month to the United States.
    Textiles, engineering goods - which comprise steel,
machinery and industrial parts - as well as gems and jewellery
are India's biggest sectors exporting to those regions.
    Re-routing via the Cape of Good Hope has meant ships sailing
from India will often need an extra 15-20 days before reaching
destinations in Europe, greatly increasing costs.
    For example, shipping a container to Britain now costs
around $4,000 compared to $600 before the Red Sea crisis, Ashok
Kajaria, chairman at Kajaria Ceramics  KAJR.NS  told an
analysts' call last month. 
    The Red Sea crisis comes only a few years after the COVID-19
pandemic when freight rates soared as supply chains snarled and
demand for goods jumped. India's small exporters have also since
been hit by weakening demand for their goods as Western
economies grapple with high inflation levels.
    "This is one of the worst times for many garment exporters,"
said Nitin Seth, chief operating officer at Pratibha Syntex, an
Indore-based garment manufacturer. 
    "If this situation persists, at least one-fifth of small
exporters could resort to job cuts," he said.
    Other exporters in India's textile industry - which directly
employs 45 million people and indirectly another 15 million -
said they were worried that they could soon lose business to
Turkey's clothing industry.
    "Turkey, a major competitor for India's textiles exports in
Europe, poses a big risk to small exporters due to its
locational advantage," said Ajay Sahai, director general of the
Federation of Indian Export Organisations.
    In one silver lining, many export contracts for India will
come up for renewal in March or April - the start of the
business year - and many smaller exporters said they are hopeful
that customers will agree to bear at least some of the burden of
increased freight costs.
    "We have a long-term relationship with our customers. We
expect they would agree to absorb a part of higher freight rates
 when contracts come up for review," said Jhunjhunwala.

($1 = 82.99 rupees)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Militant attacks affect shipping movement    https://reut.rs/42wpEkJ
Rising shipping costs hit India’s small exporters    https://reut.rs/42EEYMr
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 (Reporting by Manoj Kumar and Mayank Bhardwaj; Additional
reporting by Lisa Baertlein in Los Angeles; Editing by Edwina
Gibbs)
 ((manoj.kumar@thomsonreuters.com; +919810286200;
Twitter:@manojgulnar;))