Tea exports from India to Europe and the US are getting badly impacted and exporters are staring at massive losses due to huge rise in shipping costs owing to the Red Sea crisis.
Moreover, as far as new contracts are concerned, importers from the US and European countries might prefer to buy tea from Kenya instead of India.
Following the recent attacks by the Houthis, an Iran-backed rebel group, on several ships passing through the Red Sea, container ships are being rerouted around southern Africa to avoid the Suez canal. The longer journeys are adding at least 15 days shipping times for all the ships with merchandise cargo that are going towards the West from India, resulting in increased container rates.
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“Tea exports to entire Europe and the US are getting badly impacted. Not only additional days are being required for the shipments, container availability has also fallen significantly, leading to a huge surge in ocean freight rates. Exporters, who are supplying tea to the US and European buyers currently as per the earlier contracts, will have to incur losses for the rise in the shipping costs,” Indian Tea Exporters Association chairman Anshuman Kanoria told businessline.
Traders typically sign contracts in advance. And, most of the export contracts are generally CNF contracts, where sellers must arrange and pay for the vessels which will carry the goods to their contractual destinations.
- Also Read: India’s tea export likely to be down by 10% this year
“Obviously, trade is going to suffer due to the rise in container costs and additional shipping times. Because of the Christmas holidays in most parts of Europe and the US, the real impact will be felt once everybody opens up after the first week of January,” said Dipak Shah, Chairman, South India Tea Exporters Association.
“As far as new contracts are concerned, which will probably be signed after the holiday period, a big question to be asked is what can really happen. And, there is a possibility that people might prefer to buy tea from Kenya instead of India,” Shah told businessline.
Down by 10 per cent
India’s tea export is likely to be down by around 10 per cent this year compared to last year, mainly due to a significant decline in exports to Iran. The country’s tea exports stood at 231.08 million kg (mkg) in 2022 calendar year.
“For India, exports of all merchandise commodities will be affected due to the Red Sea trouble. Insurance companies have declared that they will not cover the insurance because they are considering the whole Red Sea zone as a conflict zone. Following this none of the ships are going to go through the Red Sea-Suez Canal route. India’s exports through the Red Sea have completely stopped,” said a shipping industry expert, requesting not to be named.