News / EU trade deal 'a boon' for India's apparel exporters

Ocean carriers in the India-Europe trades, battling profitability due to subdued growth and overcapacity, see green shoots in a free-trade agreement (FTA) between New Delhi and the EU this week.

Weakening freight rates on the tradelane have added to the heavy operational pressure carriers face from vessel reroutings as a consequence of the Red Sea crisis, which continues to be an unpredictable situation.

Current spot rates from West India to North Europe are in the range of $800 to $900 per teu/feu, with recovery efforts faltering in an unbalanced market.

“There is no room to hike rates in the current scenario,” one major carrier executive told The Loadstar. “Cargo volumes are tight, though some carriers are eyeing some mild rate increases from next month.”

To cite one example, Hapag-Lloyd has announced updated tariff rates for bookings from India (Nhava Sheva/Mundra) to Europe and the Mediterranean, seeking an increase of $400 per teu/feu to North Europe and $200 to the Mediterranean/Black Sea.

Meanwhile, local policymakers and industry stakeholders are betting on the India-EU FTA, hoping it will become the panacea to tackle the export trade challenges of high US tariffs and general demand uncertainty.

“Despite healthy and growing trade, there is a significant untapped potential, considering the size of each other’s market and trade,” India’s Ministry of Commerce & Industry said.

“The FTA provides an unparalleled pathway and holds immense promise for both, India and the EU, to emerge as each other’s major economic partners.”

Both sides claim the FTA structure has created a combined market size of some $24tn, a growing tradelane with more balanced cargo flow patterns historically.

“India has gained preferential access to the European markets across 97% of tariff lines, covering 99.5% of trade value, in particular,” the ministry noted.

“Imports of EU’s hi-tech goods are expected to diversify India’s import sources, thereby reducing input costs for businesses, benefit consumers and will create opportunities for Indian businesses to integrate into global supply chains,” it added.

India’s traditionally labour-intensive industries, particularly textiles and ready-made garments, have suffered serious demand shocks due to US tariffs over the past few months.

India’s Apparel Export Promotion Council (AEPC) said the FTA framework would be a boon to the industry, which expects exports to double over the next three years.

“India’s share is only 2.9% of the EU’s apparel market….With the elimination of tariffs on Indian apparel products, the industry gains immensely as it will get a level playing field with its competing countries, like Bangladesh, Turkey, and Vietnam which enjoy duty-free/ preferential duty access in EU’s market,” said AEPC chairman A Sakhtivel.

SC Ralhan, president of the Federation of Indian Export Organisation, added: “It [the FTA] will significantly enhance India’s export competitiveness and provide a powerful thrust to India’s engagement with global value chains.”

KM Subramanian, president of the Tirupur Exporters’ Association, believes textile/apparel exports out of Tirupur, popularly known as the ‘knitwear capital of India’, will grow 15% in the first year after the FTA implementation and double in three years.

Tirupur exports to the EU are currently in the region of some $5bn by value, sources said.