How the Red Sea crisis is impacting Supply chains, Consumers and Climate

The Red Sea is one of the world's super critical trade routes, connecting continents through the Suez Canal. The transit accounts for more than 13 per cent of global trade and 40 per cent of Asia-Europe trade. However, this route has been under severe pressure amid Houthi attacks. Major shipping lines are now avoiding the route, forcing ships to reroute to Africa's Cape of Good Hope, which has increased shipping time by 12 to 14 days.

Impact on the shipping liner industry

The Red Sea crisis has had a paradoxical effect on the liner shipping industry. Profits are boosted despite increasing costs due to disruptions. Reduced capacity has led to higher freight rates, helping the company's bottom lines. Maersk, for example, indicated that Red Sea closures could drive higher earnings.

Impact on global oil trade

Oil & Gas shipments have been under pressure all along the Red Sea route. Till last year, around 6.0 million barrels of crude oil and petroleum products transit through the route daily. This number has been reduced by 50%, severely impacting Europe's energy supply. 

The market has seen constant price fluctuations. Insurance costs have also ballooned, rising to as high as 2 per cent, adding millions of dollars in expenses per voyage. Cargo insurance rates have also skyrocketed, making the Suez Canal route financially unviable for many shipping lanes.

Impact on consumers & climate

Global importers have absorbed rising costs so far, but prolonged instability could fuel inflation. European businesses, heavily reliant on Red Sea trade, face delays and higher shipping costs. Rising costs of essentials are already reshaping consumer preferences. Continued Red Sea attacks can deepen this crisis.

Climate costs are also mounting amid rising tensions. Rerouted ships travelling up to 60 per cent farther are burning more fuel. Carbon emissions have also increased by an estimated 40 per cent voyage. 

With no immediate solution in sight, Global shipping continues to navigate uncertainty in the Red Sea.

Leveraging FTWZs to enhance Indian Pharma Supply Chain

India’s pharmaceutical industry is a global leader, but challenges like API dependency, cold chain logistics, and regulatory complexities often disrupt supply chain efficiency. Free Trade Warehousing Zones (FTWZs) are proving to be a game changer in overcoming these challenges.

How FTWZs Boost Pharma Supply Chains:

Duty-Free Storage: Store raw materials and finished goods without paying upfront customs duties and thus optimizing cash flow.

Advanced Cold Storage: Maintain temperature-sensitive products like vaccines and biologics in state-of-the-art facilities.

Simplified Customs: Fast-track clearance and streamlined processes to reduce delays.

Value-Added Services: Enable repackaging, labeling, mitting and quality checks / inspections in a hassle free manner.

Strategic Locations: Proximity to ports and airports ensures quick and cost-effective deliveries.

Facilities like DP WORLD Free Trade Warehousing Zone are revolutionizing pharma logistics by providing cutting-edge technology and infrastructure thereby streamlining supply chains. FTWZs not only reduce costs but also enhance India’s position as a global pharmaceutical leader

Leveraging FTWZs to enhance Indian Pharma Supply Chain

India’s pharmaceutical industry is a global leader, but challenges like API dependency, cold chain logistics, and regulatory complexities often disrupt supply chain efficiency. Free Trade Warehousing Zones (FTWZs) are proving to be a game changer in overcoming these challenges.

How FTWZs Boost Pharma Supply Chains:

Duty-Free Storage: Store raw materials and finished goods without paying upfront customs duties and thus optimizing cash flow.

Advanced Cold Storage: Maintain temperature-sensitive products like vaccines and biologics in state-of-the-art facilities.

Simplified Customs: Fast-track clearance and streamlined processes to reduce delays.

Value-Added Services: Enable repackaging, labeling, mitting and quality checks / inspections in a hassle free manner.

Strategic Locations: Proximity to ports and airports ensures quick and cost-effective deliveries.

Facilities like DP WORLD Free Trade Warehousing Zone are revolutionizing pharma logistics by providing cutting-edge technology and infrastructure thereby streamlining supply chains. FTWZs not only reduce costs but also enhance India’s position as a global pharmaceutical leader.

Benefits of Free Trade Zones for Pharma Supply Chain

Free Trade Zones (FTZs) provide significant advantages to pharmaceutical companies by improving supply chain efficiency, increasing flexibility, and reducing costs in an industry that is both highly competitive and heavily regulated. Here's a detailed look at how FTZs can serve as a valuable tool for pharmaceutical supply chains:

Duty Deferral and Reduction Verta has collaborated with a client who must store inventory produced in the EU within the US until it is needed at various global locations. The team implemented a public FTZ to defer hundreds of thousands of dollars in customs duties on imported materials until they either enter the US or are shipped elsewhere for consumption. This approach has enhanced the company’s cash flow and minimized or eliminated duties on imported materials.

Streamlined Customs Procedures FTZs expedite the customs clearance process, helping to reduce delays and mitigate associated risks. Pharmaceuticals, especially those that are time-sensitive or temperature-controlled, often need to meet stringent deadlines. FTZs streamline the customs process, ensuring faster distribution and timely delivery to end markets.

Quality Control and Compliance Pharmaceutical products entering an FTZ can undergo inspection, conversion, repackaging, or relabeling before reaching the market or moving to the next stage of the supply chain. This not only leads to cost savings but also ensures compliance with global health regulations, offering flexibility to manage product quality and regulatory adherence prior to reaching consumers.

Inventory Management and Lower Holding Costs FTZs allow pharmaceutical companies to store inventory duty-free for extended periods, reducing carrying costs for high-value items, such as active pharmaceutical ingredients (APIs), that may require long-term storage. This flexibility in inventory management helps reduce costs associated with holding valuable pharmaceutical goods.

Enhanced Security and Risk Management FTZs are governed by stringent security measures and detailed record-keeping, which align with the pharmaceutical industry’s regulatory requirements. These heightened security protocols help protect valuable products, intellectual property, and sensitive data—key assets in the pharmaceutical industry.

Supporting R&D and Market Expansion FTZs can simplify the process of importing small batches for clinical trials or testing, without incurring standard import duties. This benefit is particularly advantageous for companies engaged in research and development of new drugs, offering a cost-effective and streamlined way to conduct testing before moving to full-scale commercialization.

In Conclusion, Incorporating FTZs into a pharmaceutical supply chain strategy enables companies to optimize costs, streamline operations, and maintain regulatory compliance. By strategically utilizing FTZs, pharmaceutical companies can strengthen their global competitiveness while navigating the complexities of international regulations more effectively.