Impact of the Strait of Hormuz Crisis on Global Supply Chains

The ongoing crisis in the Strait of Hormuz is causing significant disruptions in global supply chains, particularly affecting the pharmaceutical industry. This impact is transitioning from an energy shock to a broader trade bottleneck, with Chinese shipping delays contributing to the pressure.

Effects on the Pharmaceutical Sector

• Critical inputs like active pharmaceutical ingredients (APIs) and key starting materials (KSMs) are sourced from or transit through China, facing delays due to constraints on safe passage for Chinese vessels.
• Ports in India, including Mundra and JNPT, are experiencing slowed cargo flows.
• India's pharmaceutical industry relies heavily on China for bulk drugs, especially fermentation-based antibiotics, vitamins, and intermediates.
• Inventory buffers of three to six months provide temporary relief but could be strained if disruptions persist.

Cost Implications

• Cost inflation is estimated at 2-5% due to crude-linked inputs, energy, and freight.
• Energy and power costs have risen by 20–30%, impacting prices of petrochemical-linked solvents and intermediates.
• Global suppliers like BASF are raising prices of excipients and selected APIs by up to 20%.

Logistical Challenges

• Rerouting shipments from the Suez Canal to the Cape of Good Hope increases transit times to 40–45 days.
• Working capital requirements and planning uncertainties are on the rise.
• Force majeure or war clauses are being invoked by exporters.

Export Concerns

• Shipments to the Middle East and North Africa (MENA) could decline by 10–20% due to logistical issues.
• India's pharmaceutical exports to West Asia are at risk, particularly to countries like the UAE, Saudi Arabia, Oman, Iraq, and Iran.
• Air freight as an alternative is not feasible, as rates increased by nearly 400%.

Overall Impact and Future Risks

• Large companies have inventory buffers, but mid-sized firms face working capital strains.
• India is significantly exposed in markets like Iran, where it supplies 40% of generic medicines.
• Geopolitical tensions are increasing input costs, with vaccine raw materials and APIs seeing spikes up to 70%.
• Supply chain disruptions could affect essential therapies in Africa, Southeast Asia, and the Middle East.