Pharma exports may take up to $500 million hit as freight costs rise

Mumbai: The Iran war is threatening India's pharmaceutical exports, with industry estimates suggesting a potential impact of $300-500 million (₹2,500 to over ₹4,500 crore), largely due to higher freight costs, if the disruptions continue through March.

Freight costs for bulk drugs from China have doubled, from $1,200 to $2,400 per container, while shipping lines are increasingly refusing cargo to Gulf hubs, or imposing surcharges of $3,500-5,000, complicating logistics, according to industry executives.


Pharma shipments to West Asia and GCC region contribute roughly 5-6% of India's over $30-billion drug exports. In addition, West Asia is also a key transit point for exports to Western countries, especially the US.

"Manufacturing in India is not impacted. But the issue of the freight increase will impact us on two angles. One is China serves India with raw material, APIs, and intermediates. So there would be an impact from China to India," said Namit Joshi, chairman of Pharmexcil (Pharmaceuticals Export Promotion Council of India). "Then when the product is manufactured in India and it has to be supplied to West Asia, that is also going to create an impact," he added.

Over the last few days since the war started, most of the freight liners are refusing to take sea freight for the Gulf countries even if somebody is ready to pay the increased charge, said another top official of the export promotion council, who did not want to be named.

"If this continues for the next 15 days, we might see some effect in the form of a dip in the exports this month itself, which is actually a year closing for us," he said.

The closing of air spaces in West Asia, which was being used as an alternative route will have a significant impact on exports.

"Since the Red Sea crisis, companies realised the route can be available or unavailable anytime, so most large companies have built inventories. Earlier they used to work with about two-and-a-half to three months of inventory; now it is closer to three-and-a-half months including goods in transit," said Chandrachur Datta, Partner, Vector Consulting Group. "The air routes were used as a fail-safe when something urgent had to be supplied. Now they are getting costlier and also unreliable."

This may lead to missed high-margin opportunities for exports.

"In European markets, prices can shift by 100% or even 300% when there is a temporary shortage. Companies could earlier capture those opportunities by sending supplies quickly by air, but that option is now under question," he added.

European Skies

Experts said imported material from European vendors will also be delayed alongside costlier freight.

Leading domestic drug makers are taking stock of the situation. Top officials said companies and their customers usually have enough drug inventory for 3-6 months. "All efforts are being undertaken by companies to ensure that supply continuity is maintained," said Sudarshan Jain, Secretary General of industry body Indian Pharmaceutical Alliance.

(Additional inputs from Teena Thacker in New Delhi)