14 September 2024, NIICE Commentary 9581
Dr Chander Shekhar
After the world economies opened up in the 1990s, to boost economic growth and development in a country, the maritime sector played a major role. The resource scarcity pushes countries to look outward and engage in trade. This resulted in the growth of international trade in the last couple of decades. Among other drivers of the economy, port is described as a strategic asset in maritime to promote and facilitate trade between countries by building a chain of port alliances, which the Japanese did decades ago, followed by China’s expansion of the shipping sector, etc. India’s initiatives such as the ten years of Maritime Agenda 2010-20, Maritime India Vision 2030 and Maritime Amrit Kal Vision of 2047 are monumental steps, achieved by covering all sectors.
Port-led Development
Indian Prime Minister Modi states in the Maritime India Vision 2030 that, “to shape our maritime prowess into a robust engine of the nation’s development, we have given top priority to port-led development as believe the immense potential of our coastline strength needs to be harnessed to the fullest”. In this direction, the launch of Vadhavan port would change India’s maritime trajectory. It is a major category port, in top ten major ports in the world, being established in Palghar District, Maharashtra. The cost of this project is projected at around including land acquisition, Rs 76,220 crore (Indian Rupee). Other features are as follow: set up total capacity of 298 million metric tonnes per annum (MMTPA), shareholding and responsibility given to the Jawaharlal Nehru Port Authority (74%) and Maharashtra Maritime Board (26%) for developing terminals, core infrastructure through PPP model would benefit the mega connectivity and transportation project like the, the International North South Transportation Corridor and other international shipping routes connecting Asia-Pacific as a whole, and private sector has been allowed for short term period in specific areas such as projects, berths, terminals, etc through concession agreement on revenue sharing basis. As per the report, India has 200 minor ports and 13 major ports which carry more than 95% of India’s international trade by volume and 68% by value. Operationalizing of Chabahar (Iran), Sittwe port (Myanmar), Duqm port (Oman) and others would boost India’s incentive to work on building merchant fleets, like Japan, South Korea, China, US, etc. Tentatively, building another Maritime theatre command in Thiruvananthapuram (Kerala) could facilitate and provide defence security to Indian merchant vessels and their port in the Arabian Sea linking to the Red Sea and Indian Ocean Region.
Economic Growth and Challenges
International trade, shipping and economic growth are intertwined in the sense they reinforce each other. It is not contested that roughly about 90% of international trade is carried through the maritime shipping lines. World economy is largely dependent on the freedom of shipping. Disturbances in the smooth flow of trade and commerce will affect regional and national economies. Expanding trade and commerce is equal to positive economic growth. The International Monetary Fund also noted that “trade among nations makes the world better off, yet is one of the contentious of political issues, both domestically and between governments”. However, natural disasters like flood, geopolitical conflicts, environmental accidents and others have often had negative impacts on shipping sector. The annual report of MoPSW (2019-20) tell that more than 95 percent of India’s trade by volume and 68% by value is moved through maritime transport. The recent Red Sea incident and the annual floods in the Panama canal affect navigating ships through these channels. Figure below illustrates the long-term ramifications of these incidents and its impact on global supply chains and cost of transportation.
Impact of Geopolitical Conflict and Natural Disasters on Global Supply Chains
Between Jan 2023 and Oct 2023, a cautious shipping activity was witnessed, the Cape of Good Hope recorded the fastest growing transit route overtaken Suez Canal. In the first quarter of 2024 onwards, a massive growth in transit from Cape of Good Town changed dynamics and reduced dependence on Suez in near future as vessels avoid taking risks via the Red Sea. Amidst instability in the Middle East, and war between Israel and Palestinians, the safety and security of transportation lanes is at risk. This was reinforced by the Houthis’ persistent attacks in the Red Sea on merchant vessels. This area has evolved into a new turbulent zone for the spill over of conflict leading four shipping giants in Europe to suspend of Red Sea route, which causes more transportation voyages and costs. On September 2, in line with other attacks, the same militant group attacked two crude oil vessels flagged by Saudi and Panama. The Red Sea, as the busiest cargo channel through which around 12 percent of international trade passes through, is an indispensable trade route transporting goods and energy and its stability is linked to the growth of the international economy. The International Monetary Fund (IMF) has warned the global repercussions of the Red Sea on international economy, which has diversified transportation channel from Red Sea to a long route to via Cape of Good Hope. Zara Zheng, trade expert and Head of Business Resilience Consulting, Maersk, underlines the risks by saying that. “Red sea has become a hotspot of geopolitical tension due to Houthi targeting commercial vessels, with over 33 attacks reported since 19 November 2023, which threaten a key maritime route for global container traffic and over $1 trillion annual merchandise. In the case of Panama Canal, a waterway that is 82 km long in length opened in 1914 for sailing, which reduces the time and distance by connecting Atlantic to the Pacific region. Rain water is its major source to sail ships. Floods and drought in the Panama Canal affect the transportation shipments. Reports indicate that the Panama Canal is sought to adapt to climate change, given cargo traffics and its vulnerability, etc.Among others, the impact of Red Sea instability on Indian economy and growth is deepened as it covers roughly about 80 per cent of India’s trade with Europe, so there is direct impact on India’s energy sector and economic interests, such as inflation.
Lesson Learnt
The Red Sea and its periphery have evolved as one of the uncertain and insecure transport zones for the shipping sector and economies. Therefore, shipping companies are switching to alternate routes for trade and commerce as manifested above. The failure of intelligence agencies and experts to catch the spillover effects on maritime safety and security in the region is a pivotal concern. The swift and reactionary strikes on the Houthis group by the West could have escalated it than would have deployed early preventive forces and defence to shipping vessels passing through the Red Sea. The shielding of merchant vessels has long been practised by the United States, China and others through naval forces. Farea Al-Muslimi also noted the assumption that “the Houthis won’t back down after US and UK strikes on Yemen”.
The United Nations Conferences on Trade and Development (UNCTAD) in its 2023 Maritime Transport report is apparently optimistic about the future of maritime trade with the unprecedented security situations. It notes that shipping’s resilience despite challenges, such as war in Ukraine, maritime trade is expected to grow more than 2% between 2024 and 2028. During the 3rd voice of Global South Summit, held on 17 August 2023, Indian leader talked about development and peace amidst conflicts going on in the world and India’s role as peace-making nation between Ukraine and Russia.
Conclusion
Shipping sector played a major role in connecting and integrating economies around the world. It also resulted in globalisation with the flow of goods and services from one to another region. Counter-globalization would hit this process majorly. Instability in the maritime regions, such as the Red Sea, and others could affect policy decisions in another country. Along with port building, simultaneously countries need to focus on their defence and also alternatives. Geo-economy is deeply linked with geopolitics, none can survive with another. Delaying a ceasefire has long term impacts on potential maritime shipping lines and projects.
Situation unfolding in the Red Sea would have potential effects in and around the Arabian sea including India. International shipping industry is also facing other challenges, including safety and security of seafarers who are abandoned by vessels. Living without amenities and wages for days on an abandoned merchant vessel led to mental illness, so to deal with India’s Sagar Mein Yog (mindfulness through practising yoga) could be historic to make them strong and stable in such uncertain conflict that leads to fear of death and piracy threats.
Dr. Chander Shekhar was associated with Research Information System (RIS), New Delhi, and Indian Council of World Affairs, India.
