Red sea crisis sends India-Europe freight costs soaring

Indian exporters are grappling with a sharp rise in container surcharges and freight rates driven by surging demand in 'hot' Indian markets and constrained shipping capacity. Carriers have responded by rolling out hefty surcharges, capitalizing on the capacity squeeze and strong westbound booking demand on India-Europe routes, pushing rates near pandemic-era highs and intensifying cost pressures on exporters.

Port congestion in India has evolved into a deeply entrenched structural challenge, with significant backlogs causing shipments booked as far back as March to remain pending well into July. This bottleneck, compounded by the limited availability of international shipping capacity and the ongoing Red Sea crisis, has driven ocean spot shipping rates up by over 300% in just five months, severely disrupting supply chains and escalating costs for Indian manufacturers reliant on timely deliveries.

The prolonged Red Sea crisis and escalating geopolitical tensions around critical maritime chokepoints like the Strait of Hormuz and Bab-el-Mandeb Strait have severely disrupted Indian exporters' shipping routes, forcing major lines to reroute vessels around the Cape of Good Hope. This detour adds 10 to 21 days to transit times and has driven freight rates on India-Europe and India-US routes up by 200-400%, with companies like CMA CGM imposing surcharges as high as $5,000 per container, squeezing margins especially for MSMEs dealing in low-margin goods such as garments and spices. The Federation of Indian Export Organisations (FIEO) and analysts highlight that these disruptions have also reduced direct vessel connectivity at Indian ports, increased reliance on transshipment hubs like Singapore and Jebel Ali, and introduced unpredictable sailing schedules and opaque contingency charges, compounding delays and logistics risks.

Maritime insecurity in the Red Sea region has triggered a sharp rise in marine insurance premiums and bunker fuel costs—fuel prices have surged by 60% since early 2026—dramatically increasing operational expenses for shipping companies such as Hapag-Lloyd and Maersk, which reported billions in added costs and a 44% year-on-year rise in bunker fuel prices. These cost pressures cascade down to Indian exporters, inflating landed crude prices and domestic fuel costs, thereby exerting inflationary pressures across manufacturing, agriculture, and logistics sectors. Smaller and mid-sized Indian enterprises, with limited pricing power, face acute margin compression and liquidity stress amid this volatile environment, as noted by experts like Puneet Kansal.

The strategic importance of maritime route security has been underscored by the fact that despite India’s efforts to diversify crude oil suppliers, over 80% of India-Europe merchandise trade still relies on the vulnerable Red Sea corridor, which accounts for nearly half of India’s exports and 30% of imports. The threat of a potential closure of the Bab-el-Mandeb Strait by the Houthi movement, reportedly under Iranian instruction, exacerbates this vulnerability, risking partial shutdowns and halving traffic flow through these chokepoints. Industry leaders like Ajay Srivastava of GTRI emphasize that military actions alone cannot restore commercial confidence, urging India to bolster domestic shipping capacity, naval protection, trade finance, and alternative transport corridors to mitigate these persistent risks.

The ongoing instability in the Red Sea and adjacent waterways is part of a broader pattern of emerging maritime battlegrounds—including the Strait of Hormuz and the Black Sea—that are reshaping global trade routes and forcing shipping companies to adopt costly risk mitigation strategies. These include rerouting vessels, increasing insurance premiums, and building inventory buffers, all of which inflate transit times and operational costs. As Daejin Lee, global head of research at Fertistream Freight, notes, these waterways are no longer isolated incidents but integral to a shifting 'new world order' that threatens the stability and predictability crucial to Indian exporters, particularly those shipping under the India-UK free trade agreement.

In response to the prolonged Red Sea crisis and growing maritime chokepoints, Indian shipping lines and global carriers like Maersk and Hapag-Lloyd have strategically rerouted services via the trans-Suez route instead of the longer Cape of Good Hope, optimizing transit times and enhancing maritime security. Simultaneously, new service launches and increased vessel deployments by CMA CGM, ZIM, ONE, and HMM—such as the Asia-East Coast South America and Mediterranean-West Africa services—reflect a concerted effort to strengthen shipping capacity and connectivity, thereby mitigating congestion and delays that disproportionately impact Indian exporters.

India is aggressively investing in expanding port capacity, shipbuilding, and bolstering its Indian-flagged fleet as part of a government-driven strategy to enhance maritime security and shipping resilience amid global trade disruptions. This is complemented by significant improvements in hinterland connectivity through Dedicated Freight Corridors and expanded highway networks, enabling integrated logistics solutions that support export competitiveness by ensuring reliable and flexible cargo movement from ports to inland markets.

Multimodal connectivity initiatives, exemplified by Maersk’s FI2 service linking Pipavav port directly to India’s Dedicated Freight Corridor rail network, are central to building supply chain resilience and flexibility in South Asia. By integrating sea, rail, and road transport, these efforts reduce vulnerability to disruptions and congestion, while parallel investments in warehousing, distribution networks, and air freight capabilities further enhance the logistics sector’s ability to swiftly adapt to evolving trade challenges.

Experts like GTRI’s Ajay Srivastava emphasize that India must treat maritime insecurity as a persistent trade risk by strengthening domestic shipping capacity, naval protection, trade finance, and alternative transport corridors. The ongoing Red Sea crisis, which has slashed Suez Canal traffic by 60-70% and forced costly rerouting that inflates freight rates by up to 40%, disproportionately burdens MSME exporters in sectors such as garments, engineering goods, and spices, underscoring the urgency for India to enhance naval security and shipping infrastructure to sustain export competitiveness.