Freight Costs Surge As Indian Exporters Abandon Red Sea Route Amid Israel-Iran Tensions

Indian exporters are facing a sharp spike in logistics costs, with freight rates rising 30–40% as they abandon the Red Sea route in the wake of escalating tensions between Iran and Israel.

With the threat of missile attacks and naval confrontations looming, exporters have rerouted shipments via the Cape of Good Hope, adding nearly 20 days to delivery timelines.

The current situation has upended the global supply chain, Pankaj Chadha, chairman of the Engineering Exports Promotion Council, told NDTV Profit. "There are no direct shipments now. Exporters are uncertain when containers will arrive at their destination. The traditional credit cycle is going out of the window," he said.

The Red Sea, which handles nearly 30% of India’s exports to Europe and North Africa, has become an increasingly volatile zone following Israeli strikes on Houthi targets and fears of retaliation from Iran. As a result, shipping lines are avoiding the Bab el-Mandeb Strait, forcing Indian exporters to take the much longer route around Africa.

To make matters worse, oil prices are expected to rise amid the threat of a potential closure of the Strait of Hormuz, through which, two-thirds of India’s crude and half of its LNG pass. With freight charges already up and fuel costs likely to follow, exporters—particularly in engineering, textiles, and chemicals—are bracing for further shocks.

Chadha also raised concerns over ongoing negotiations on the proposed bilateral trade agreement with the United States.

“Any deal should involve sector-specific tariff considerations. A blanket reduction won’t be fair on engineering exporters, who already face stiff global competition,” he cautioned.

SC Ralhan, President of the Federation of Indian Exporters Organisation, said "short-term impact on demand and logistics" is expected, particularly in the Gulf region, which serves as a crucial hub for Indian exports.

"Increased shipping costs, longer transit times, and rising marine insurance premiums may add pressure, especially in price-sensitive sectors...while there are temporary headwinds, we see this as an opportunity for Indian exporters to explore alternate routes, strengthen regional partnerships, and consolidate India’s role as a reliable trade partner in uncertain times," he said.