Israel-Hamas war: Higher shipping costs, premiums may lower export margins

Escalation of violence may impact trade volumes, say experts

With West Asia becoming a riskier geography by the day, exporters may have to face a thinning of their margins due to higher shipping costs and insurance premiums in the wake of the Israel-Hamas war, say experts.

“While the Israel-Hamas conflict has the potential to increase shipping costs and insurance premiums for Indian exporters, the impact on trade volumes remains relatively limited at this stage. The bilateral trade relationship between India and Israel has diversified in recent years, encompassing various sectors beyond diamonds and petroleum products,” Germany-based analytics firm Container Xchange told Business Standard.

While the conflict may result in higher expenses for Indian exporters, the impact on trade volumes is expected to be limited unless the war escalates significantly, the firm said. 

The primary concern at this point is the financial burden on exporters, which may reduce their profit margins. According to sector watchers, India's Export Credit Guarantee Corporation (ECGC) may consider charging higher risk premiums from Indian firms involved in exports to Israel.

This is a standard practice when dealing with regions facing increased instability and risk. Such premiums are designed to protect Indian businesses from potential losses due to geopolitical uncertainties.

Insurance industry officials expect a minimum impact on marine insurance premiums due to the ongoing conflict in West Asia.

“Due to the conflict in Israel and Hamas, the War and Strikes, Riots and Civil Commotion (SRCC) rates will go higher.

The ships that pass near Israel are at higher risk of an attack from the conflict, and therefore, the premiums are bound to rise.

However, marine insurance is only a small part of the overall general insurance segment with average premiums being around 0.15 per cent. Owing to the conflict, the average is likely to rise to nearly 0.25 per cent,” said a senior industry official.

According to an analyst, since the traditional routes are not impacted, overall there will be no major impact on premiums, though rates may go up only on the India-Israel route.

“Currently the traditional shipping routes are not impacted as the conflict is restricted to a specific area. Hence, no major impact on shipping or transit premiums is expected as of now.

Some rise in shipping freight rates may happen due to higher demand fearing escalation in hostilities. Exports from Israel to India or imports by Israel from India may carry a higher insurance premium due to direct and present danger to the goods and ships carrying the goods. In case, the traditional shipping routes are impacted by the conflict in which more countries get involved, then we could see higher premiums,” Deepak Jasani, head of retail research, HDFC Securities, told Business Standard.

India’s Adani Ports and Special Economic Zone (APSEZ), which operates Israel’s Haifa Port, also said the company is prepared for any eventuality.

“We are closely monitoring action on the ground, which is concentrated in South Israel, whereas Haifa port is situated in the North. We have taken measures to ensure the safety of our employees and all of them are safe. We remain fully alert and prepared with a business continuity plan that will enable us to respond effectively to any eventuality,” the company said.

Meanwhile, a double whammy of global headwinds and geopolitical unrest may have an impact on container prices, which have already reduced on a monthly basis for several ports in India in October, such as Mundra, Nhava Sheva, Kolkata, and Chennai, according to data.