Logistics Disruptions Drive Up Costs Amid Ongoing Conflict
The ongoing conflict has resulted in significant cost increases for various industries, particularly those involved in construction and development.
Increased Freight Costs Due to Rerouted Shipments
- Rerouting shipments via the Cape of Good Hope adds 6,000 to 10,000 nautical miles to journeys, leading to delays of 10 to 20 days.
- This increase in distance has led to a rise in freight costs of Rs 1.5 to Rs 3.5 lakh per container.
Additionally, higher marine fuel prices around Rs 1 lakh per tonne, war surcharges, and insurance premiums have further exacerbated the situation.
Cost Pressures and Project Delays Looming
Keval Valambhia, chief operating officer of CREDAI-MCHI, a developers' industry body, notes that early signs of 5-8 per cent cost pressures are evident, particularly in energy-intensive materials and logistics.
- Segments such as tiles and ceramics are already experiencing supply-side stress due to LPG constraints, which could have a cascading effect on finishing timelines.
While developers and contractors are currently absorbing the additional costs, a prolonged conflict could lead to price hikes and project delays.
Prolonged Conflict Could Have Lasting Impact
Even if the conflict ends soon, a full reset of the situation will take one to three months, according to a report.
This prolonged disruption could have a lasting impact on the industry, with some of the damage being "cast in steel and concrete."
Contractors Managing Shortages, but Future Uncertain
“At this stage, contractors are managing the shortages and cost hikes. But we may face a problem down the road,” said an official from the Maharashtra State Road Development Corp (MSRDC).
Project Cost Fluctuations and Potential Delays
- An official from the MMRDA indicated that project cost may fluctuate in accordance with the variation clause in the contracts based on indices of by the central government.
- Delays and project halts may be on the horizon, with a prolonged disruption potentially leading to delayed execution cycles and selective price recalibrations.
Keval Valambhia of CREDAI-MCHI notes that while developers are currently absorbing these shocks, a prolonged disruption could have significant consequences for the industry.
“At this stage, developers are largely absorbing these shocks, but a prolonged disruption could translate into delayed execution cycles and selective price recalibrations,” said Valambhia.