The impact of the Red Sea crisis on the trade of Bangladesh

The impact of the Red Sea crisis on the trade of Bangladesh

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The Bangladeshi-flagged vessel ‘MV Meghna Adventure’ is now on its way to Chittagong with soybean seeds from the United States. The nearest route for the ship to arrive at Chittagong is through the Mediterranean via the Suez Canal and the Red Sea. However, due to the crisis in the Red Sea, the ship is now coming to Chittagong after visiting Uttamasha Antrip in Africa. It will take at least five to six days more to cover the additional one and a half thousand nautical miles.

It can be seen on the vessel finder website, which monitors the movement of ships, that at six o’clock in the evening last Saturday, the ship was heading towards Chittagong along the sea route near Madagascar after visiting Africa. The ship left Daro Port on the Mississippi River in the United States on December 27. Scheduled to reach Chittagong on February 14. It will take 53 days in total. According to CDistance, a website that calculates the distance between seaports, it would have taken six days less time to reach Chittagong from the United States by using the Red Sea route than Uttamasha Antarip. The distance would be reduced to 1,589 nautical miles.

The Meghna Adventure ship belongs to Bangladesh’s leading conglomerate Meghna Group of Industries (MGI). 59 thousand tons of soybean seeds brought by ship are also theirs. Soybean oil and animal feed will be produced from soybean seeds at Meghna factory. When asked about the impact of detouring, Meghna Group of Industries Chairman Mustafa Kamal told Prothom Alo, “There is a fixed operating cost of 10,000 to 12,000 dollars per day just for operating the ship.” There is an additional cost to be paid for the detour. Even if it is own ship, this cost is added to the import price of the product. I have faced this challenge for the first time since the beginning of the crisis. All ships coming from the United States have to use this route now to avoid major risks.

Container shipping lines have imposed surcharges since January on imports of goods in containers other than bulk vessels. Initially, the foreign suppliers of the product paid this surcharge, but now they add it to the price of the product. It has increased the cost of goods brought in containers from Europe, USA, Egypt and Turkey by 30 to 35 dollars per ton. Exports have been affected as well as imports. Suddenly in January, the export of goods by aircraft increased by almost one and a half times. Due to the pressure of export, the rent has also increased.

Yemen’s Houthi rebels launched attacks on ships in the Red Sea last December in retaliation for Israel’s strikes on Gaza. As a result, after December 15, four of the world’s five largest container shipping companies announced the suspension of shipping in the Red Sea. 50 days of the Red Sea crisis have already passed. Most of the ships of the major shipping lines are now sailing around the African continent.

However, although shipping through the Red Sea decreased, it did not stop completely. While some of the larger shipping lines are using the Red Sea, smaller and medium-sized shipping lines continue to ply this route. Along with Houthi rebels, increasing piracy has also increased the risks along the route. Ship insurance premiums have increased due to risk. The rent has also gone up a bit. These effects are affecting the import of Bangladesh products from the United States, 27 countries of the European Union, Turkey, Egypt and Morocco.

Air freight pressure
The information of Hazrat Shahjalal Airport shows that 14 thousand 851 tons of goods were exported by aircraft through this airport in January this year. Export income was 18.55 million dollars. In January last year, the export of goods was 4 thousand 450 tons. The export income was seven million dollars. In other words, there has been a 165 percent increase in export earnings through Dhaka Airport. In terms of volume, 60 percent of total exports in January this year were exported to EU, US, Turkey and Egypt.

Tusuka Group exported 386,000 pieces of clothing worth about $3.8 million by air last January. Most of these products were destined for the United States and European Union countries. When asked, Tusuka Group official Masum Hossain told Prothom Alo, “There are two reasons to export products by airplane. First, production was delayed due to labor agitation in Gazipur in November. Secondly, because of the Red Sea crisis, exports had to be airlifted to get the goods to the buyers quickly. We have to pay the cost of transportation of some of these products.

Like the Tusuka Group, the five factories of the Ananta Group exported around 190,000 pieces of garments to aircraft last January. Again Fakir Fashion Limited of Narayanganj last January exported 733 thousand pieces of clothes worth 2.8 million dollars in aircraft. Most of the products were destined for Spain.
When asked, Sharif Zahir, managing director of Anant Group, told Prothom Alo that if the impact of the Red Sea crisis lasts longer, the pressure on the export of emergency goods by aircraft will increase.

The exporters hand over the goods to the freight forwarders who act as agents for transporting the goods to foreign buyers. Khairul Alam, vice president of Bangladesh Freight Forwarders Association, an organization of these companies, told Prothom Alo that due to the pressure of goods transportation, the fare per kg to European destinations has increased from 1 dollar 60 cents to 2 dollars 60 cents. Again, the fare to the destination of New York’s JFK airport increased from $2.80 cents to $4.

Direct costs on imports are increasing
Products are imported in bulk ships and container ships from countries like Europe and USA. A month and a half after the beginning of the crisis, the Chittagong-bound bulk ship Africa is turning around. Like MV Meghna Adventure, the Meghna Crown ship also left for Chittagong from the US port with soybean seeds.
MGI subsidiary Mercantile Shipping Lines general manager. Abu Taher told Prothom Alo that despite the additional cost, the risk has to be taken into consideration. If you travel through Red Sea, you have to pay more insurance premium. In other words, the Red Sea crisis has increased the cost in all ways.

However, Bangladeshi ships are also running on the Red Sea route. Akiz Resources Limited’s ship ‘MV Akiz Star’ is bound for Chittagong via Red Sea. When asked, an official of Akiz Resources Limited told Prothom Alo that the ship is on its way to Chittagong via the Red Sea with DAP fertilizer from Morocco. Insurance premiums are higher for driving through hazardous areas.

Additional costs have to be paid for the import of container products. Let us take the example of iron and steel industry. The main raw material for this industry is scrap iron scrap, which is the major source of the United States and 11 countries belonging to the European Union. In 2023, these countries will import 1.867 thousand tons of scrap iron, which is about 40 percent of the total imports.

When asked, Deputy Managing Director of KSRM Group Shahriar Jahan Rahat told Prothom Alo that compared to the first week of January, the suppliers are asking for 30 to 35 dollars more per ton of old scrap iron. Suppliers said it will take 10 to 11 days more than before due to detour.

When asked what is the reason for the price increase, Iftekhar Ahmed, the manager of Switzerland-based supplier company IMR Bangladesh, told Prothom Alo that due to the impact of the Red Sea crisis, ships from Europe and the United States are taking longer to arrive on the route. The additional rent required for this is added to the price of the product, so the price of the product has also increased.

Import of raw material for textile industry like scrap iron has also been affected to some extent due to transport problems. Last year, 13 lakh 47 thousand tons were imported into the country. Of this, 169,000 tons are imported from the United States, which is 13 percent of the total cotton imports. Apart from this, about 3 percent of the imports are also coming from Türkiye. The cost of importing cotton from these two countries is increasing. However, most of the cotton is imported from India, Brazil, Benin, Australia and Cameroon. 53 percent of total imports come from these 5 countries.

President of BTMA, the association of textile owners, Mohammad Ali told Prothom Alo, “After the Red Sea crisis, every pound of cotton is now costing four to five cents more. Due to the increase in prices, we are now trying to import from alternative countries.

The cost of importing commercial goods like industrial raw materials is also increasing. In this case, the example of Malta can be given. 48 percent of the malt imported into Bangladesh comes from Egypt. Last year, 93 thousand tons of Malta was imported from the country. 3 thousand 350 air-conditioned containers are required for this. Calculated at one and a half thousand dollars per container, now Malta will have to pay additional shipping charges of 50 million dollars or about 55 million taka.

An official of NR Trade, the importer of Malta, told Prothom Alo that it used to take 25 to 30 days to import Malta from Egypt through the Suez Canal. Now the journey takes at least 14 days extra time. Now the suppliers are asking one dollar more per 15 kg carton.

However, the impact of the Red Sea crisis did not fall on the entire import sector. The goods imported from the United States, Egypt, Turkey and 27 countries of the European Union, in terms of quantity, are about 4 and a half percent of the country’s total import goods.

It is 8 percent of the product price. For example, 28 lakh 38 thousand tons of goods were imported from the United States last year. 18 lakh 38 thousand tons are imported from European Union countries. 3 lakh 34 thousand tons of goods are imported from Egypt, 2.5 lakh tons from Turkey, 8 lakh 10 thousand tons from Morocco. In other words, the 60 million tons of goods imported from these countries in total are affected or likely to be affected by the Red Sea crisis. Last year, 13 crore 63 lakh tonnes of goods were imported into the country.

What is the alternative?
When asked to know how to reduce trade risks by avoiding the Red Sea crisis, Mostafizur Rahman, an honorable fellow of the research organization Center for Policy Dialogue (CPD), told Prothom Alo that there will be additional pressure on exports due to the impact of the crisis. Imports will affect some but not all sectors. Consumer spending may increase in these sectors. Entrepreneurs need to look at importing products easily and at low cost from alternative sources to counter the impact.

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