The Red Sea crisis that began in late 2023 has significantly disrupted one of the world’s most important maritime trade routes. Security risks in the Red Sea led many major container shipping companies to avoid the Suez Canal and reroute vessels around the Cape of Good Hope. For India, this shift has created important challenges for international trade. The longer route has increased shipping distances and transit times, raised freight and insurance costs, and placed additional pressure on exporters’ working capital.

The impact is particularly important for Indian exporters because several major export markets in Europe and the United States were traditionally served through the Suez Canal. Sectors such as textiles, seafood, engineering goods, chemicals, auto components and processed food depend heavily on predictable and reasonably priced maritime transport.

The disruption therefore affects not only shipping companies but also the competitiveness and profitability of Indian exporters. Recent analysis of the prolonged crisis highlights that Indian exporters continue to face higher logistics costs even after the initial shock of the disruption.

This article examines how rerouting around the Cape of Good Hope has affected Indian export lead times and costs, which firms and sectors are most exposed, and what measures could strengthen India’s resilience to future disruptions.

Longer Routes and Higher Shipping Costs

The most direct effect of rerouting is the increase in voyage distance. A typical Asia–Europe journey through the Cape of Good Hope can add approximately 3,500–4,000 nautical miles and around 10–14 days to the journey. For some Indian export sectors, the increase has been even greater. Indian shrimp exporters, for example, have reported shipping times increasing from approximately 18–20 days to 30–35 days. The additional distance has therefore translated directly into longer delivery times and higher transportation costs.

The effect is particularly visible in India’s seafood industry. Analysis of the shrimp export sector shows how the additional distance created by the Cape route has weakened one of India’s important export advantages by increasing both transit times and logistics costs.

Longer voyages also reduce the effective availability of ships and containers. When vessels spend more time at sea, the same number of ships can complete fewer journeys within a given period. This effectively reduces available global container capacity. Estimates suggest that the Cape diversion has absorbed around 5–7% of global container capacity, contributing to higher freight rates.

The increase in freight costs has been particularly significant during periods of peak disruption. Freight rates on important India–Europe and India–US routes increased sharply, with some routes recording increases of several hundred percent. Certain corridors, such as Kolkata–Rotterdam, experienced particularly large spikes. War-risk insurance premiums also increased substantially on exposed routes.

These higher costs create a serious problem for industries operating on relatively low margins. Exporters may be unable to fully transfer increased transportation costs to foreign buyers because of competition from other suppliers. As a result, higher logistics costs can reduce exporters’ profit margins and make Indian products less competitive in international markets.

Impact on Indian Exporters and MSMEs

The effects of the crisis are not equally distributed across all exporters. Small and medium-sized enterprises are particularly vulnerable because they generally have less bargaining power with shipping companies and fewer financial resources to absorb unexpected cost increases.

Large firms may be able to negotiate long-term contracts with shipping lines, maintain larger inventories or use more sophisticated financial and trade-finance instruments. Smaller exporters, in contrast, may depend more heavily on spot freight rates and have limited access to working capital. A sudden increase in freight costs can therefore create immediate financial pressure.

The problem becomes more serious when delays affect production and delivery schedules. Industries such as apparel, auto components and chemical intermediates often operate with relatively tight delivery timelines. A delay of 10–14 days can result in missed delivery deadlines, contractual penalties and weaker relationships with overseas buyers.

For seafood exporters, particularly shrimp exporters, longer transit times can be especially important because the products are time-sensitive and require careful logistics. Higher freight costs and longer delivery periods can therefore directly affect their competitiveness.

The disruption also affects working capital. When goods remain in transit for longer periods, exporters may have to wait longer to receive payment from buyers. At the same time, they may need additional funds to finance production and future shipments. This creates a cash-flow problem, particularly for MSMEs with limited access to affordable credit.

Where and When the Impact Has Been Greatest

The disruption has been most significant on trade routes between India, Europe and the US East Coast that previously depended heavily on the Suez Canal. Since late 2023, major international shipping companies have increasingly used the Cape route for Asia–Europe services.

The persistence of the disruption is important. Initial expectations were that the Red Sea crisis might be a temporary shock and that shipping companies would return to the Suez Canal once security conditions improved. However, the disruption continued into 2025 and 2026. Even where some carriers tested a return to Suez, subsequent changes in routing demonstrated that shipping companies continued to face considerable uncertainty.

Industry reporting during 2026 has documented repeated changes in carrier decisions concerning Suez services, illustrating how quickly routing strategies can change when security conditions remain uncertain.

The continued diversion has therefore transformed what was initially viewed as a temporary logistical disruption into a longer-term trade and supply-chain challenge. For Indian exporters, this uncertainty makes it difficult to plan transportation costs, delivery schedules and inventory requirements.

Evidence of the Economic Impact

Available evidence shows that the disruption has affected shipping activity, transportation costs and delivery times. According to the UNCTAD Review of Maritime Transport 2025, uncertainty surrounding the Red Sea continued to keep Suez Canal traffic significantly below its 2023 level. The diversion around the Cape also increased the distance that vessels had to travel, placing additional pressure on shipping capacity.

Industry data indicate that the Cape detour can add approximately 10–14 days to Asia–Europe voyages and absorb a significant amount of global container capacity. Freight-rate data also show substantial increases during the most intense periods of the disruption.

The Indian seafood sector provides a useful sector-specific example. Reported shipping times for shrimp exports increased from around 18–20 days to 30–35 days, while freight costs increased significantly. Such changes demonstrate how a global maritime disruption can translate into a direct increase in the cost of exporting an individual product.

Insurance costs provide another channel through which the crisis affects exporters. Increased security risks in the Red Sea have resulted in higher war-risk premiums for vessels operating on exposed routes. Since insurance forms part of the overall cost of international trade, these increases add to the financial burden faced by exporters. Research on India’s maritime insurance exposure also highlights the importance of insurance costs as a separate component of the wider maritime supply-chain risk

Strategies for Exporters

• Indian exporters can adopt several strategies to reduce their exposure to future shipping disruptions. One approach is to move from short-term spot bookings towards longer-term freight contracts. Longer contracts can provide greater certainty regarding freight costs and the availability of shipping capacity.
• Exporters can also diversify their transportation arrangements. For high-value or highly time-sensitive products, air freight or multimodal transport may provide an alternative when maritime routes become unreliable. Although these options are more expensive, they can help firms meet critical delivery commitments.
• Inventory management is another important area. Maintaining a limited strategic inventory buffer can reduce the risk of production interruptions caused by shipping delays. Better demand forecasting can also help exporters plan shipments more effectively and avoid excessive dependence on last-minute transportation arrangements.
• Access to trade finance is equally important. Export credit and working-capital facilities can help firms manage the longer period between production, shipment and payment. Such financial support is particularly relevant for MSMEs that may otherwise face liquidity constraints during periods of prolonged disruption.
• Practical guidance for Indian exporters has similarly emphasised the importance of planning for longer transit times, monitoring freight conditions and building greater flexibility into export logistics.

Policy Measures for India

The Red Sea crisis also highlights the need for stronger policy support for India’s export sector. Government intervention can focus on both immediate relief and long-term resilience.

In the short term, targeted measures such as interest support on export credit, freight-support programmes for vulnerable MSMEs and faster customs procedures can help reduce the financial burden on exporters. Such measures should be carefully targeted towards firms and sectors facing the greatest exposure rather than treating all exporters in the same way.

In the longer term, India needs to strengthen its maritime infrastructure and reduce dependence on individual routes or foreign transshipment hubs. Expanding domestic transshipment capacity, including greater use of facilities such as Vizhinjam, can improve India’s position within regional shipping networks. Greater development of coastal shipping can also provide additional flexibility within India’s logistics system.

Another possible measure is the creation of a national maritime risk-monitoring mechanism. Such a system could combine information on shipping routes, freight rates, insurance premiums and security conditions. Timely information would allow exporters and policymakers to respond more quickly to disruptions.

Limitations and Longer-Term Lessons

One important lesson from the Red Sea crisis is that supply-chain disruptions cannot always be treated as short-term events. Early assessments assumed that shipping companies would quickly return to the Suez Canal once security conditions improved. Continued rerouting and repeated changes in carrier decisions have shown that maritime routes can remain uncertain for much longer than initially expected.

At the same time, the situation remains dynamic. Shipping companies have periodically considered or tested a return to the Suez route as security conditions change. Xeneta’s analysis of developments in container shipping illustrates this gradual movement towards reconsidering Suez services while also reflecting the continuing uncertainty surrounding the route.

This uncertainty makes resilience increasingly important. Measures such as longer-term freight contracts, diversified transport arrangements and improved risk management can reduce the effects of future disruptions, but they cannot completely eliminate India’s exposure to important global maritime chokepoints.

The crisis also demonstrates that logistics is an important component of export competitiveness. India’s ability to compete in international markets depends not only on production costs and product quality but also on how reliably and economically goods can reach foreign markets.

Conclusion

The rerouting of ships around the Cape of Good Hope has created a significant logistical challenge for Indian exporters. Longer voyages have increased lead times, reduced effective shipping capacity and contributed to higher freight and insurance costs. These effects are particularly important for MSMEs and time-sensitive export sectors such as seafood, textiles, auto components, chemicals and processed food.

The crisis also demonstrates the importance of moving beyond short-term responses. Exporters can reduce their exposure through longer-term freight contracts, selective inventory buffers, transport diversification and improved access to trade finance. At the policy level, India can strengthen maritime infrastructure, improve domestic transshipment capacity, support vulnerable exporters and develop better systems for monitoring maritime risks.

Ultimately, the Red Sea disruption shows that international trade depends not only on demand, production and trade policy but also on the reliability of global transport networks. Building a more diversified and resilient logistics system will therefore be important for India’s long-term export competitiveness and its ability to withstand future disruptions to major maritime trade routes.