Perspective on Impact of higher freight costs via Red Sea/Suez Canal by Ms. Madhavi Arora, Emkay Global Financial Services
Below the perspective on Impact of higher freight costs via Red Sea/Suez Canal by Ms. Madhavi Arora, Lead Economist, Emkay Global Financial Services
Oil & Gas: For India Oil & Gas, bulk of the crude & LNG comes through Persian Gulf, hence Red Sea issues wont hamper those flows much. However, Russian oil flows from the Black Sea may be affected and rerouted.
This could also lead to a higher premium for Middle East crude. Overall, there may be some impact for crude importing refiners (and OMCs), but an outsized impact is unlikely unless issues prolong.
For standalone refiners such as RIL, MRPL and CPCL, there could be some margin hit on the crude side, while on the product side, exports to EU could be impacted. RIL takes in the bulk of Russian crude, and also exports sizeable quantity to Europe and South America. However, it is very difficult to quantify the impact given swap arrangements.
Brent has been largely stable at ~USD80/bl. We hence do not see any material impact as of now, though a deterioration in the scenario and delay in resolution may change this
* Auto: Freight costs may increase marginally for export-oriented companies like Bajaj Auto, TVS etc. No major impact on P&L. Delay in shipments may not have as severe an impact as during the chip shortage crisis as channel inventories have largely normalized/rather high in PVs, and demand has also moderated reasonably
* FMCG: No impact to coverage companies (Crude and palm oil are largely imported, but they are not imported via this route)
* Chemicals: Shipping cost increase will hit the P&L to a certain extent. This will specifically impact the companies exporting to Europe, but the demand itself is relatively subdued, so not much impact
* Logistics: Domestic logistics players are not impacted. Railway operators may see marginal impact as topline will see increase, but absolute operating profits will not see any improvements
* Cement: No material impact as petcoke is not imported via this route
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