Pak-India Tension: Impact on Trade Amidst War Threats and Vessel Restrictions
The longstanding political tensions between Pakistan and India have once again intensified, creating fresh challenges for the trade and logistics sectors in both countries. With ongoing war threats and severe diplomatic strains, both nations have taken stringent measures affecting airspace usage, vessel operations, and port access. These developments are directly impacting regional trade flows, freight rates, and logistics operations — posing significant hurdles for businesses engaged in import and export activities.
Closure of Airspace and Vessel Berthing Restrictions
One of the most immediate and disruptive effects of the escalating situation has been the closure of airspace by both countries. Airlines operating between Pakistan and India, as well as overflying routes, have been forced to reroute their flights, resulting in longer transit times, increased operational costs, and logistical bottlenecks.
Moreover, vessels arriving from Indian ports are now being denied berthing rights at Pakistani ports. This unprecedented restriction is causing delays in the delivery of consignments, affecting exporters, importers, and freight forwarding companies operating in the region. Import cargoes that were previously routed via India are now being diverted, creating scheduling conflicts and operational challenges for shipping lines and terminal operators in Pakistan.
Expected Increase in Freight Rates
As the trade routes tighten and logistical options narrow, the region is witnessing a noticeable surge in freight charges. With limited vessel availability and rerouted cargo movements, shipping lines are adjusting their rates to compensate for increased transit times and operational risks.
In July 2024, Karachi’s goods carriers announced a 20% increase in fares, citing rising diesel prices and increased toll taxes as primary causes. Additionally, Pakistan Railways implemented a 3% increase in freight rates across the board, further escalating transportation costs.
This escalation in freight costs could have a direct impact on the prices of imported goods within Pakistan. Businesses relying on raw materials and finished products from India or shipments routed via Indian ports will find themselves facing higher transportation costs, potentially affecting profit margins and product pricing strategies.
Economic Impact of the Ongoing Tensions
Beyond logistics and freight, the current Pak-India tensions are exerting pressure on Pakistan’s broader economy. Trade restrictions and disrupted supply chains can lead to increased costs of essential imports, placing strain on local industries reliant on imported raw materials, machinery, or components.
Pakistan’s trade deficit widened by 35% year-on-year in December 2024, reaching $2.444 billion, as imports hit a 27-month high. Furthermore, the suspension of the Indus Waters Treaty by India poses a significant threat to Pakistan’s agriculture and hydropower sectors, which heavily depend on the Indus River system.
The ongoing uncertainty may also deter foreign investors and trading partners who perceive the regional instability as a business risk. This could impact investment inflows, job creation, and overall economic growth in the short to medium term. For a developing economy like Pakistan, heavily dependent on trade and foreign exchange stability, such disruptions are a cause for serious concern.
Emerging Challenges for Pakistan’s Trade and Logistics Sector
The current geopolitical scenario has triggered several new challenges for Pakistan’s trade and logistics sector:
Limited Route Options: With vessels from India barred from berthing at Pakistani ports and airspace restrictions in place, trade routes have become more limited and congested.
Operational Delays: Delays in cargo handling, customs clearance, and port operations are expected due to diverted shipping routes and increased documentation requirements for alternative arrangements.
Strain on Local Ports: Pakistani ports may experience congestion as alternative cargoes reroute directly through Karachi, Port Qasim, and Gwadar, increasing operational pressure on terminal operators and logistics providers.
Impact on Export Commitments: Exporters may face difficulties in meeting international commitments on time, risking penalties or damage to business relationships with overseas clients.
Wider Economic Ramifications: Rising freight rates, inflationary pressures, reduced foreign exchange inflows, and potential investor apprehension could all combine to slow Pakistan’s economic recovery and growth prospects.
Conclusion
The rising tensions between Pakistan and India have created an uncertain environment for regional trade. With the closure of airspace, restrictions on vessel berthing, increased freight charges, and broader economic challenges, Pakistan’s logistics and export sectors are navigating through unprecedented difficulties.
Businesses engaged in international trade must stay vigilant, explore alternative routing options, and remain updated on government advisories and operational guidelines. Collaborative efforts between shipping lines, freight forwarders, and trade bodies will be essential to mitigate disruptions and maintain the steady flow of trade in these testing times.