Trade Turbulence Ahead: Exporters Brace for 20% Surge in Logistics Costs Amid Geopolitical Strains

Image Source : Medial

India’s export sector is staring at a steep rise in logistics expenses, with costs projected to jump by 15–20 percent due to escalating tensions in the Middle East. The ongoing Israel-Iran conflict has disrupted key air and sea routes, triggering a ripple effect across global supply chains and threatening to derail the country’s export momentum.

Key Drivers Behind the Cost Spike

- Closure of airspace over Pakistan and Iran has forced Indian carriers to reroute flights, significantly increasing air freight costs. Some corridors have seen rates quadruple, from ₹35/kg to ₹140/kg.

- Sea freight is also under pressure as shipping lines avoid the Red Sea and Suez Canal, opting instead for the longer Cape of Good Hope route. This detour adds 14–20 days to transit times and has driven up freight charges by as much as 600 percent on certain routes.

- War-risk insurance premiums have surged 2–4 times, further inflating the cost of maritime transport.

- Brent crude prices have spiked over 8 percent, raising the cost of aviation turbine fuel and marine fuel—two major components of freight pricing.

Impact on Indian Exporters

- Exporters of time-sensitive goods such as electronics, pharmaceuticals, and perishables are particularly affected, as air freight becomes prohibitively expensive.

- The unpredictability of shipping schedules has led many exporters to delay consignments, especially to Europe, which accounts for nearly 80 percent of India’s merchandise trade via the Red Sea.

- While food exports may see a minor disruption, officials believe these are likely to stabilize quickly due to priority handling.

- The diamond trade could also be impacted, with rough diamond supplies from Israel facing delays. However, India’s robust cutting and polishing industry is expected to maintain downstream supply to global markets.

Trade Outlook and Strategic Concerns

- India’s exports to Israel and Iran, though modest in volume—$2.1 billion and $1.2 billion respectively in FY25—hold strategic value and are now under scrutiny.

- The Federation of Indian Export Organisations (FIEO) has flagged the situation as a serious concern, urging exporters to factor in higher costs and longer lead times.

- Despite the challenges, gradual recovery in export movement had been a key driver behind India’s ambition to cross $900 billion in goods and services exports by FY26. The current disruptions now cast uncertainty over that trajectory.

Sources: The Economic Times, Logistics Insider, Times of India, World News.