Heat along the Red Sea: Pakistan’s exporters fret over shipments to EU, US

KARACHI: Heat along the route of the Red Sea is set to take a toll on Pakistan as industry officials say export shipments meant for Europe and the US are seeing a massive surge in costs.

Maritime attacks by Yemen’s Iran-aligned Houthis, which it said was a bid to support Palestinians amid the ongoing Israeli aggression in Gaza, disrupted trade this week on the main East-West route that makes up about 12% of global shipping traffic.

Rather than use the key route between Asia and European markets, some shipping companies are now taking a major detour around southern Africa.

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The first sector to receive the hit in Pakistan was perishables — fruits and vegetables.

Pakistan has markets for its mandarin (Kinnows) in some areas in Europe, and Patron in Chief All Pakistan Fruit & Vegetable Exporters Importers and Merchants Association (PFVA) Waheed Ahmed told Business Recorder that the fruit’s shipments are getting affected in the ongoing season.

The route has changed from the Red Sea via Suez Canal to an alternative via Cape of Good Hope that has increased distance by some 3,500 kilometers.

Ahmed said since the shipments have not yet been delivered, it remains to be seen how their quality would have been affected since travel time increased by around 66%.

“The coming season is of potatoes. I think if this (crisis in the Red Sea) continues, exporters may opt out of exporting,” he said.

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Not just fruits and vegetables

It’s not just fruits that are being affected. Textile and rice shipments are also facing stress. Haseeb Ali Khan, Senior Vice Chairman of the Rice Exporters Association of Pakistan (REAP), said exporters have been incurring losses as they were honouring orders when they had assumed freight charges of $750.

However, after the logistical nightmare, shipping companies have jacked up freight charges to around $1,800, a massive 140% hike.

Rice is mainly exported to East Africa and Europe through this route.

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However, Haseeb remained upbeat on breaking $3-billion export mark for rice in the ongoing fiscal year 2024.

Data shared by the official revealed 2.3 million tons of rice worth $1.5 billion has been exported in the six months of FY24 (July-December).

This is in stark contrast to the export performance in FY23 when rice exports dropped to $2.14 billion due to floods. The amount stood at $2.54 billion in 2022.

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“Transit time has increased to 50 days from 30 days. A high mark-up is also creating a big hurdle.”

Apart from transit and freight charges, insurance companies have also increased additional war risk insurance premiums.

Businessmen Group Chairman Zubair Motiwala also confirmed that the textile sector was facing similar issues.

The EU is the most crucial export destination for Pakistan, with over one-fourth of the country’s exports heading to the European market. Pakistan has a $4-billion trade surplus with the EU with exports standing at a significant $9.3 billion in FY21.

Meanwhile, Pakistan exports to the US totaled $6 billion in 2022 against imports of $3.2 billion.

‘All ocean trade to get affected’

Interestingly, Captain Asim Iqbal, an expert on maritime trade, highlighted how the scenario changes the dynamics of entire ocean trade.

“Right now, fuel costs have increased significantly because of longer voyage as ship speeds increased to reduce delays. This is costing tens of millions of dollars a month.

“According to Drewry (index), rates on Asia-Europe and Asia-Mediterranean are now up by over 200% since mid-December when the Red Sea crisis began to escalate,” he added.

“Delays to return voyages meant there would be a shortfall of up to 780,000 twenty-foot equivalent unit (teu) of equipment due to arrive in Asia and this is a major factor in pushing up spot rates,” he explained.

“A shortage of equipment also means that the upwards rate pressure will spread to all export trades out of Asia and not just trades going around Africa.”