No Santa for exporters this Christmas: Iran war disrupts supply chains, stretches transit times to 60 days, threatens margins

Exporters supplying goods for the Christmas shopping season to the US and Europe are facing a fresh round of supply chain challenges, as the ongoing West Asia crisis pushes up freight rates, stretches shipping routes, and significantly increases working capital requirements.

Traditionally, India’s Christmas-bound exports to the US are led by textiles and apparel, home textiles, carpets, footwear, fashion accessories, handicrafts and gems and jewellery, with manufacturers typically shipping orders several months ahead of the holiday retail season.

Between June and September, Indian exporters usually ship Christmas-season orders to the US and Europe. Geopolitical tensions, however, have caused supply chain disruptions, longer transit times, and higher logistics costs this year.


Notably, the US is India’s largest export destination, accounting for goods exports worth over $86 billion in FY25, according to government data. The concern this year is not a collapse in orders but the rising cost and complexity of fulfilling them. Industry officials, across home textiles, footwear, and carpets, said demand for Indian products remains relatively healthy ahead of the holiday season. However, longer transit times, rising raw material prices, and delayed payment cycles are forcing exporters to commit more capital while earning thinner margins.


Costs rise and cash gets locked
According to Vikas Singh Chauhan, Director of the HomeTextile Exporters Welfare Association (HEWA), exporters are dealing with simultaneous pressure from higher input costs and logistics disruptions. “Raw material prices have increased significantly, a 20-70% difference, resulting in a substantial rise in the working capital required to execute the same volume of orders,” Chauhan said.

Notably, the US remains the largest market for Indian home textile exports, accounting for 59% of outbound shipments in FY24 and 56% in the first nine months of FY25, according to a recent ICRA ratings report. Chauhan said the shipping environment has changed dramatically over the past few months. “Simultaneously, transit times have extended considerably. Shipments to Europe now take nearly 60 days compared to the earlier 24-40 days accompanied by a sharp increase in sea freight costs, about 15-30%.”

The longer voyages are largely the result of vessels avoiding conflict-prone routes and taking alternative passages around the Cape of Good Hope. Exporters said the change has disrupted delivery schedules across sectors and increased pressure on cash flows.
Industry players highlighted that the extended transit period means payments are also getting delayed, keeping working capital tied up for longer durations. “The payment cycle across the export sector has been severely affected,” Chauhan said.

Despite all these challenges, exporters said overseas buyers continue to show interest in sourcing from India, particularly as global companies look to diversify supply chains.

Chauhan believes Europe is emerging as a promising market for Indian manufacturers. “There is encouraging momentum in Europe for Indian products, particularly in light of the recently concluded India-EU Free Trade Agreement. This presents a significant opportunity for Indian companies,” he said.

According to him, the European textile market offers an opportunity comparable to that of the US market, especially for exporters focusing on sustainable and compliant products. “The losses incurred due to the Trump-era tariffs over the past two years were considerable, but if Indian MSMEs (micro, small, and medium enterprises) focus on manufacturing sustainable and compliant products, they have the potential to achieve substantial growth over the next 3-4 years through the EU market alone,” Chauhan said.

The business optimism around US-bound demand is shared by exporters in other sectors as well.


Orders intact but margins under pressure
The footwear sector, too, has entered the Christmas production cycle amid rising costs. India’s leather, footwear, and allied product exports rose nearly 25% to $5.7 billion in FY25, with the US remaining the single-largest market at around 22% share, while Europe and the UK together account for roughly 60% of shipments, according to data from the Council for Leather Exports (CLE).

Puran Dawar, President of the Agra Footwear Manufacturers and Exporters Chamber (AFMEC), said footwear exporters are currently producing autumn-winter collections that are shipped during August and September for Christmas and seasonal sales in Western markets.

He said order books are stronger than they have been over the last few years, partly due to India’s ongoing trade engagement with key markets. He attributed the improvement in order flows partly to India’s push for FTAs, Bilateral Trade Agreements (BTAs), and Comprehensive Economic Partnership Agreements (CEPAs) with key trading partners. “People are looking at India; we are getting better orders,” Dawar said.

Yet, despite these positives, Dawar argued that the operational environment remains challenging for the exporting community. According to him, most footwear components are derived from petroleum-based materials, making the sector vulnerable to fluctuations in global energy-linked supply chains. “Prices of raw material have increased three times in the past two months. We can bear the price hike, but the larger issue is that of availability,” he said. He added that container shortages and longer shipping routes have compounded the problem.

Dawar believes footwear exporters are currently unsure about meeting delivery timelines, and some will definitely fail due to non-availability of raw material, time taken for imports, and the timeline for export routes through the Cape of Good Hope. “What used to take 10 days for Europe now takes 30 days. I see two things happening: firstly, we will be affected badly by bottom lines, and secondly, some deliveries may face delays, so we have to ship by air. That will make a big difference to us cost-wise.”

The impact on supply chain extends beyond production costs. Exporters say labour costs are also increasing as companies deploy additional manpower and production lines to meet shipment deadlines. “We are trying our best by putting more people, labour, and working lines so that we can deliver in time. But even the labour prices have been impacted,” Dawar said.

For the country’s home textile exporters, labour availability has emerged as a challenge alongside logistics disruptions.

Chauhan said feedback from HEWA members suggests MSMEs units are dealing with 5-10% of labour shortages. “The labour-intensive sector is currently experiencing pressure due to labour shortages,” he said.

He added that exporters are also facing funding constraints because longer transit times are delaying cash realisation.

During the war period, he said many banks were hesitant to extend financing support to exporters. However, the situation is gradually improving, he added. According to him, exporters now require greater capital infusion because of extended transit times and disrupted payment cycles, and the CGTMSE scheme has emerged as a significant source of support for MSMEs.

The carpet industry, another labour-intensive MSME segment, is facing similar challenges. The US accounts for 55-60% of India’s carpet exports, making it the sector’s largest overseas market. India’s carpet exports were valued at around $1.15 billion in FY25, according to estimates from the Carpet Export Promotion Council (CEPC).

Mahavir Pratap Sharma, Director of Oscar Exports and CEPC’s past president, said freight rates have spiked sharply while shipment volumes remain below previous years. “Export orders are coming, but it is just that the freight has gone up and time taken is more. So, people are planning in advance. The cycle is longer and freight costs are higher, so people are working around it,” Sharma said.

According to Sharma, sea freight costs for carpet exports have increased substantially. “For carpets, sea freight has increased by at least 50% so the cost has gone up. But the time taken is a little more because the ships are taking longer or the wait period is higher.”


Caution replaces optimism
While freight and logistics remain the primary concern for many exporters, some garment exporters say tariff-related disruptions have already weakened their position in the US market. Sumit Jain, Director of Delhi-based Kanin Commerce, which exports cotton-based T-shirts and garments to overseas markets, said his company’s US business has “practically come to a standstill” since the first round of tariff measures was announced.

According to Jain, several American buyers either reduced or halted sourcing from India, forcing the company to shift its focus towards African markets. “We have lost our competitive positioning completely. American buyers have reduced or stopped sourcing from India, and we are very demotivated about the US market.”

Elaborating further, he said that there is currently a great deal of uncertainty regarding the US market. The firm has reached out to buyers and undertaken marketing efforts through its US office, but so far there has been no positive response. “From what I see in the market, including in Tamil Nadu, more than half the factories are struggling. There is very little work. Demand is weak and production activity is low.”

He added that apparel manufacturing hubs such as Tiruppur, which ship large volumes to the US each year, are also facing weaker demand. “I had visited Tiruppur for my sourcing needs, but there is no raw material; forget about Christmas orders. The feeling I get from visiting textile hubs across the country is that we don't have adequate cotton and yarn availability, and that's what is hurting most small textile exporting companies this time around.”

A similar sense of caution is visible in the gems and jewellery industry, where exporters are closely watching demand trends in the US before committing to Christmas season production.

Jayantibhai Savaliya, Regional Chairman, Gujarat, at the Gem & Jewellery Export Promotion Council (GJEPC), said manufacturers have yet to begin production for Christmas orders, as the sector typically starts work around October and largely operates on a made-to-order basis. He said exporters are adopting a wait-and-watch approach amid US tariff concerns and geopolitical uncertainty, making it difficult to gauge demand at this stage.

Notably, the US accounts for nearly 30% of India’s gems and jewellery exports, making it the industry's largest overseas market, according to the Gem & Jewellery Export Promotion Council. The sector exported gems and jewellery worth over $32 billion in FY25, making it one of India's largest foreign exchange earners.

“We haven’t started production for Christmas orders yet. The production cycle for this sector begins approximately 1.5 months earlier. With 15% tariffs in the US and the war, we are in a wait-and-watch mode. For Christmas, we only manufacture based on orders, so cannot predict the situation right now. We expect it to be a medium season without the hype seen previously. The situation will largely depend on how the US economy is faring,” Savaliya said.

Savaliya added that lab-grown diamonds continue to witness strong demand in the US, creating a new customer segment even as the broader industry remains cautious about the outlook for the holiday season. He said exporters are increasingly diversifying towards destinations such as the UK and Canada rather than relying on a single geography.

The uncertainty surrounding global demand is adding another layer of complexity for exporters.

“We don’t know what will happen in the near term,” CEPC’s Sharma said, adding that compared to previous seasons, he estimates that his business's export volumes have decreased by 20-30%.

Despite the near-term challenges, exporters remain hopeful that India's growing trade engagement with major markets will create opportunities over the medium term. Chauhan said a stronger dollar and euro are providing some support to exporters, and that sentiment remains positive ahead of the Christmas season.

Dawar, meanwhile, warned that delivery schedules remain vulnerable.

While exporters are adapting through earlier production planning and market diversification, Sharma believes the disruption is unlikely to ease anytime soon. "It appears that things will continue this way for at least six months, if not more."