Capital goods and fertilisers are most impacted by the Red Sea crisis: CRISIL

The Red Sea crisis has led to a sustained disruption in trade routes. This delays timely delivery of goods due to attacks by Houthi rebels in Yemen on cargo ships plying waters connecting Asia with Europe and the United States (US).

As a result, traffic is being forced away from the Suez Canal and redirected around the tip of Africa, the market intelligence and analytics arm of CRISIL said in a research note. These developments hold the potential to significantly impact players within the capital goods and fertiliser sectors.

Commenting on the Capital goods sector, CRISIL said, “The ripple effect of such disruptions extends to various facets of the industry, potentially leading to an undesirable inventory build-up. This accumulation can, in turn, exert pressure on the operational efficiency of engineering, procurement and construction companies.”


“The intricacies of supply chain management become more pronounced as delayed deliveries may contribute to a slowdown in the crucial process of order conversions along with shooting up logistics costs,” CRISIL added.

According to the note, the disruption is causing delays and driving up costs when economies are already grappling with concerns of resurgent inflationary trends.

The Red Sea conflict has also impacted Middle East’s fertiliser exports to India. Shipment timelines have been extended by nearly a fortnight and hiked freight costs. “Import of the key fertiliser, muriate of potash (MOP), from Jordan and Israel has been majorly affected. Israel constitutes 10-15% of MOP exports to India, while Jordan constitutes 25-30%,” CRISIL said while adding that the Indian government has assured a sufficient buffer for fertilisers but MOP supplies from these countries will be affected if the situation persists for long.

Shipping freight rates have spiked because of geopolitical issues in the Middle East and attacks on vessels sailing through the Red Sea. Container shipping freight rates globally are now 2.5-3.0 times higher than in early December 2023, spot rates for vessels transiting through the Suez Canal — particularly from Asia to Europe — have surged nearly five-fold, CRISIL said while adding that rates from China to the US have more than doubled.

The increase in global spot rates is also because of a shortage of available vessels at ports owing to unscheduled rerouting around the Cape of Good Hope, causing delays of up to two weeks.