The Suez Canal crisis has prompted an inter-ministerial huddle as market observers fear exporters will be hit if the situation remains tense over the next few quarters.

Freight moving through the Suez Canal has dropped 45 per cent in two months since the attacks by Yemen’s Houthis. Shipping companies are diverting freight through Cape of Good Hope now.

“We are conscious of the fact that the Suez Canal route is very important for us. We are talking to all the different ministries. I have held one inter-ministerial consultation and we are looking at the situation closely,” Union commerce secretary Sunil Barthwal said on the sidelines of a session organised by Bharat Chamber of Commerce on Saturday.

He added that while the crisis in the region is an international situation, the government is exploring ways to help Indian exporters.

“At present, trade is moving through the Cape of Good Hope. It has increased the transportation cost. We are now looking at whether it is also affecting the overall volume or not,” he said.

Indian companies use the Red Sea route through the Suez Canal to trade with Europe, North America, North Africa and parts of West Asia. A study by Crisil shows that these regions account for around 50 per cent of India’s exports worth Rs 18 lakh crore and 30 per cent of imports worth around Rs 17 lakh crore last fiscal.

“Players operating in sectors such as agricultural commodities and marine foods could see a significant impact because of the perishable nature of their goods and/or lean margin profiles, which limit their ability to absorb the risks from rising freight cost.”

“Players operating in sectors such as textiles, chemicals and capital goods may not be immediately impacted because of their ability to pass on higher costs or because of a weaker trade cycle,” Crisil said in its report.

Increasing attacks on ships sailing through the Red Sea region since November 2023 have persuaded shipping companies to consider a longer route past the Cape of Good Hope, which in turn has extended the transit time by 15-20 days and also increased the transit costs substantially because of higher freight rates and insurance.