'Red Sea turmoil casts a cloud over Bangladesh's $40b trade'

Khairul Alam Suzan. Sketch: TBS

The Red Sea unrest has become a global trade menace as ships divert to alternative routes, raising operational time and costs. With freight charges soaring by nearly 50%, the supply chain disruption poses a threat to Bangladesh's $40 billion import-export trade, said Khairul Alam Suzan, vice president of Bangladesh Freight Forwarders Association, in an exclusive interview with TBS Chittagong Bureau Chief Shamsuddin Illius and Staff Correspondent Shahadat Hossain Chowdhury.

How much cargo does Bangladesh transport via the Red Sea, and what are the implications of the unrest for Bangladesh and global trade?

Approximately 61% of Bangladesh's exports find their way to Europe and America via the Suez Canal and the Red Sea, with 8% of imports also utilising this route, totalling about $4 billion in trade. The ongoing Houthi attacks have led major shipping companies to avoid this route, necessitating course changes for ships bound for Europe and America.

The shift in route forces ships onto the Cape route, adding an extra 3,000 kilometres and 11 days to their journey. With each ship covering an additional 6,000 kilometres, the extra time required for round trips amounts to 22 days.

Shipping companies have already imposed a surcharge of approximately 40% on standard freight charges for detour usage, resulting in added costs to Bangladesh's $4 billion trade. These additional expenses are likely to be absorbed at the consumer level within the country. If this situation persists, it could contribute to an extended global trade recession.

The global economy has already faced repercussions from the Russia-Ukraine war, with nations, including Bangladesh, endeavouring to recover from the losses. However, the turmoil in the Red Sea has introduced yet another disruption to global supply chains, posing additional challenges.

Which goods are shipped through the Red Sea for Bangladesh's import and export?

Primarily, the Red Sea or the Suez Canal facilitate the export of ready-made garments, pharmaceuticals, handicrafts, jute, leather, and frozen food.

On the import side, essential items like cotton, chemicals, capital machinery, and industrial materials are crucial. Timely import of these products is vital for maintaining production schedules, ensuring that products reach buyers on time, and preventing financial losses for both buyers and sellers, especially for those managing chain shops.

What will be the repercussions for Bangladesh?

Bangladesh is heavily reliant on imports. Essential goods such as food, petroleum, LNG, edible oil, sugar, wheat, rice, industrial and garment raw materials, as well as chemicals and pharmaceutical ingredients, must be imported.

Similarly, export-oriented factories depend on timely imports of raw materials. The sea route plays a crucial role in these, where every second is monetarily significant. The impact of disruptions will be felt directly and indirectly by Bangladesh and its neighbouring countries.

"If the Red Sea unrest lingers, instability may set in within Bangladesh's manufacturing sector, particularly affecting the ready-made garments and export-oriented industries, with the added concern of potential job losses for industrial workers."

Should sea transport fail to meet the stipulated timeframe, traders may resort to air shipments, incurring 15 to 20 times the freight cost compared to shipping. This proves costly and unprofitable for both buyers and sellers. In such a scenario, Bangladesh's time-sensitive export-oriented industries – especially the ready-made garment and pharmaceutical sectors – will face severe challenges.

Disruptions in the schedule of mother vessel connections at transhipment ports like Colombo, Singapore and Port Kelang are causing an increase in congestion of import and export cargo containers. If this situation persists, further increases in freight are likely.

If the Red Sea unrest lingers, instability may set in within Bangladesh's manufacturing sector, particularly affecting the ready-made garments and export-oriented industries, with the added concern of potential job losses for industrial workers.

How will the price of imported goods be impacted?

Raw materials from Europe and America are crucial for local industries, like importing cotton from America for clothing production or chemicals for pharmaceuticals. If the cost of importing these materials rises, it will increase the prices of locally produced goods.

Despite facing many challenges, Bangladesh is actively pursuing significant development projects. To sustain this developmental momentum, the economic wheel must keep turning. Otherwise, the country's progress will decelerate.

Before the onset of Red Sea disruptions, timely shipments were possible for the delivery of orders before the New Year and Christmas Day. If these products were delayed or stuck, it could lead to a disaster for the country.

What is the resolution to the crisis?

A collective effort is essential to form unity with countries likely to be impacted by the maritime crisis. Initiatives should focus on securing sea routes and supply chains through discussions with the nations in conflict to prevent widespread suffering and minimise adverse effects on national economies.

India's foreign minister has already visited Iran, offering suggestions on navigating the ongoing crisis. Avoiding disaster requires collaborative initiatives for a win-win situation. Developing inter-country relations with nations involved or caught up in the crisis is imperative for sustaining the economies of all countries.

If needed, inter-country dialogues can be pursued to address these crises. A joint consensus among different nations could potentially alleviate instabilities in the sea route.