Red Sea crisis: Exporters face 150% airfreight hike, count extra Tk20cr daily

Infograph: TBS

Air freight charges for container transport from Bangladesh to Europe and the US have surged by up to 150% with escalating demand from exporters who are opting for this pricier mode of transport amid disruptions in the traditional Red Sea route. This is imposing an additional financial strain of around Tk20 crore daily on Bangladeshi exporters.

Exporters said some of them are now using Indian airports as the neighbouring country's air routes offer comparatively cheap options with many direct flights to different destinations.

However, Indian exporters are unhappy with the increased demand from Bangladeshi exporters as they say their own freight has become costlier because of the additional demand from Bangladesh, according to reports in the Indian media.

Ashikur Rahman Tuhin, a newly elected director of the BGMEA, pointed out that the Red Sea crisis causes a delay of an extra 14 days in shipments, leading to increased air shipments as buyers demand timely delivery.

Some brands, experiencing high demand, also request air shipments, and in such cases, may bear the additional costs themselves, he said.

Red Sea insecurity hiking freight cost 

Major sea freight firms have been avoiding the Red Sea and Suez Canal due to security concerns sparked by Houthi attacks linked to Israel's actions in Gaza, opting for the longer route around Africa.

These voyages are longer by two weeks or more with this detour, much longer than what buyers accept, exporters said.

They said most buyers accept 7-10 days of delay in lead time, which now is not possible with the additional time needed due to detour. Therefore, exporters are relying more on air freights in recent months to maintain their lead times.

Industry insiders said airfreight costs per kilogram of cargo bound for Europe from Dhaka have more than doubled to $4.5-$5 a substantial increase from the $2 rate observed just three months ago. Similarly, airfreight expenses for shipments destined for the US have surged to $6.5-$7 per kilogram compared to the $3 rate recorded in December.

For example, exporters now ship 600 tonnes or six lakh kilograms of goods via Hazrat Shahjalal International Airport in Dhaka daily that cost them $1.2 million three months ago. With the freight cost rising by $3 per kilogram, Bangladeshis now incur an additional $1.8 million per day, equivalent to Tk20 crore (@Tk110/USD).

According to the Bangladesh Freight Forwarders Association (BFFA), Dhaka airport's daily cargo handling has surged to an average of 600 tonnes of goods, a significant increase from the 150 to 250 tonnes recorded three months prior.

BGMEA Director Ashikur Rahman said if manufacturers opt for air shipments due to their own delays, they are responsible for covering the air freight costs.

Md Jasim Uddin, managing director of Aman Garment Ltd, said they have already shelled out $34,000 in air freight costs to ship goods worth $60,000 to a US customer.

He said, "We incurred a warehouse charge of Tk1.2 lakh at Dhaka airport as our goods remained there for about 20 days, with the first seven days being free of charge."

He also highlighted the challenges they faced, stating, "Due to cargo shortages, we had to switch forwarders twice, resulting in an increase in costs by about $1 per kilogram. Initially, we paid $3.25 per kilogram to the first forwarder, but ultimately, the cost rose to $4.65."

Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told TBS that Bangladeshi exporters always try to ship their goods on time. "They resort to air freight when necessary to maintain lead times."

Siddiqur Rahman, former president of the BGMEA, said around 90% of air cargo users in Bangladesh are apparel exporters. Small amount of vegetables are exported by air, he added.

Indian airports for shipment  

Kabir Ahmed, president of the BFFA, said apparel manufacturers have been under immense pressure since late December to ensure timely delivery of goods. As a result, export-cargo load at Dhaka airport increased significantly.

On top of that, he added, Dhaka airport's cargo handling capacity became strained with some air freighters – Turkish, Emirates, Qatar and Saudi – slashing their cargo operations in Bangladesh. "In the absence of dedicated cargo flights, we often find ourselves relying on passenger flights."

Amid this situation, many exporters are compelled to use Indian airports for shipments, said Ahmed. "The volume of Bangladeshi goods transported through their airports has risen significantly, from 150 to 200 tonnes per month to 350 to 500 tonnes."

Sheikh HM Mustafiz, managing director of Cute Dress Industry Ltd, said some exporters are opting for Indian airports due to their lower air freight costs compared to Bangladesh.

He said shipment through India has another advantage of having direct flights to most Western countries, contrasting Bangladesh's reliance on transit through a second country for exports to the US and Europe.

Indian exporters annoyed  

With rising pressure of Bangladesh exports passing through Indian airports, the neighbouring country's exporters are demanding a halt in trans-shipment cargo from Bangladesh. They argue that the increase in Bangladeshi shipments is straining their airport capacity and driving up operational costs.

A clothing manufacturer in Delhi named 16th July has been grappling with challenges in exporting its goods to other countries since the final week of February.

Cargo rates per kilo have escalated from Rs250 to Rs465, and there has been a noticeable increase in airport wait times, said Darpan Thakar, the founder of 16th July, in an interview with the Indian business portal, The Core.

"Previously, our cargo was shipped the next day of booking a shipment, but now we have to wait roughly ten days for our shipments to be exported," said Darpan.

Ruby Abidi, the director of Air Cargo, a logistics service provider, said when Bangladesh exports began coming to Delhi, they did not see any commotion, and capacity was adequate until last November.

"However, rates rose in tandem with ocean-to-air conversions starting in December, affecting our business. The Inditex cargo coming from Bangladesh into India is using up our capacity," he told The Core.

Sudhir Sekhri, chairman of India's Apparel Export Promotion Council (AEPC), said his organisation has already written to the government to suspend the trans-shipment of Bangladeshi cargo.

"I think we should either look at adding more capacity or temporarily hold on the trans-shipment cargo which is making freight rates high and thus the commodities too. This would hamper export orders from India," said Abidi.

However, Ajay Sahai, director general and CEO of the Federation of Indian Exports Organisations, has a different perspective. He believes that one has to look into the broader objective of allowing shipments from Bangladesh.

"I hope that this issue will be sorted out and probably that will bring much relief on the air shipment also," said Sahai.

Third Terminal will enhance capacity 

Kabir Ahmed, president of BFFA, said the country's demand for air cargo stands is 1,000-1,200 tonnes per day but the current capacity falls short, reaching less than half of this requirement.

He said that once Dhaka airport's third terminal is opened, it will significantly boost its cargo handling capacity. A Japanese company is expected to handle the ground and cargo operations for the new terminal, which will further enhance efficiency.

He expressed hope that by the end of this year, Bangladesh may complete the remaining work on the new terminal.

Faruque Hassan, president of BGMEA, echoed this sentiment, saying that the operation of the third terminal will lead to an increase in cargo handling capacity.

The government plans to expand its airline fleet and introduce new direct routes, which will enhance cargo capacity, said Faruque Hassan, who is also a director of Biman Bangladesh Airlines, the national flag carrier.

Biman Bangladesh Airlines recently resumed direct flights on the Dhaka-Rome-Dhaka route after nine years, facilitating air connectivity between Bangladesh and Italy. Hassan said this route will enable direct transportation of goods, enhancing trade efficiency.