IMEE EC: Winds of Change

Constantly, winds blow in a pattern…for many centuries, with the monsoon winds in the sails, traders sailed with ease to carrying goods from Kerala coast to (and back) from Arab land. Southwest monsoon and retreating monsoon winds were integral part of the sailing schedules of hundreds of ships laden with spices (cinnamon, cardamom, turmeric, ginger), gems, ivory, and muslin. Arab traders carried this precious cargo onwards on camel backs to Europe and made hefty profits. On the way back, these ships brought olive oil, roman wine, and gold coins to India, popularly known as ‘Sone ki chidiya’. India enjoyed the leadership and favorable balance of trade for long. This was the ancient Spice Route.

On the sidelines of recent G20 meeting, we saw the announcement of the Modern Spice Route, aka India Middle East Europe Economic Corridor (IMEE EC). It aims to boost connectivity and trade, joining India to Saudi Arabia and thereon to Europe. Significant signatories to this proposal are the UAE, Saudi Arabia, France, the EU, the USA, and Germany.IMEE EC will consist of two separate corridors — the Eastern Corridor, connecting India to West Asia/Middle East, and the Northern Corridor, connecting West Asia/Middle East to Europe.

This is a multi-modal transport corridor. Ships will sail from JNPT/ Mundra/ Kandla to Jebel Ali (UAE). Etihad rail will take the goods to Al Ghwefat (Saudi border). Existing high speed freight train network then takes the containers to Al Haditha on Saudi-Jordan border. Rail tracks from here up to Haifa port (Israel) are the ‘missing link’ currently. From Haifa the goods will travel by ship to Piraeus (Greece) and thereon by land to rest of Europe.

What are the drivers for this corridor? Why now?

• The Covid pandemic and the subsequent geopolitical disturbance due to the Ukraine- Russia war has hugely affected the economics of trade, and strategic alliances amongst nations.
• Blockage of Suez Canal in Mar’21 showed us how vulnerable our supply chains are. We felt the need for an alternative route to reach Europe. This corridor provides a 40% faster movement.
• With the objective to reduce dependence on China for RM and finished goods, most large corporations embrace China+1 policy. This is indeed an opportunity for India, who now has singular focus on promoting local manufacturing.
• Towards its own west, India is landlocked with volatile relationships/governments in Pakistan and Afghanistan. IMEE EC provides India a faster, stronger, direct route to ME and Europe.
• SA and UAE have ambitious 2030 economic goals in the post-oil era. This necessitates building stronger partnership with big economies of Europe and India.
• Europe’s interest is to reduce dependence on Russia (after the war).
• US interest is to create an alternative to China’s BRI (Belt and Road Initiative) to maintain (read retain) balance of world power.

China’s BRI reminds me of the white horse from Ashwamedh Yagya ceremony (ancient India). A new king would let loose a white horse to wander across lands of other kingdoms. Any state who does not accept the leadership of the new king, will have to fight with the cavalry accompanying the white horse. The intention is to prove undisputed leadership on territories. BRI has been China government funded program with the clear objective of providing easy & stable market access to the large manufacturing capacities of China. BRI has drawn much criticism for leaving many states indebted and losing ownership of assets (port/ road) to China.

IMEE EC journey thus far

This is indeed a transformative, multi-lateral, path-breaking (literally) initiative. It also encompasses transfer (trade) of Solar electricity, Green Hydrogen and high-speed data transfer…in addition to goods movement. Hi-speed fiber-optic cables, electricity grid and gas pipelines are going to be laid alongside the same right-of-passage across nations.

This corridor was initially envisaged as a business initiative when I2u2 (India, Israel, USA, UAE) leaders met in 2021. US roped in Saudi participation as well into the program. Partnership for Global Infrastructure and Investment (PGII) was subsequently given charge to evaluate and blue-print the initiative. (PGII is a collaborative effort by the G7 to fund infrastructure projects in developing nations)

With 75% of physical infra is already in place, the program seems promising. The fruition date is likely to be within 2years.

Saudi Arabia has vast lands, ample sunshine, and deep pockets. It plans to quickly take leadership position in production of green energy. As part of “One Sun, One Earth, One Grid” theme, laying of the electricity grid makes business sense too.

Note: it is expensive to store solar energy and it needs to be consumed while it is produced. Different time-zones amongst the participating nations will demand transmission of Solar energy over the multi-national grid.

Green Hydrogen is positioned to be the fuel of future. India and Arab countries have extraordinary plans to support production capacities.

Devil’s advocate wants to know…

• There are too many nations involved and may lead to delays. As per the commitments from USA, Saudi Arabia, and UAE the program is on high priority. Key officials are to meet and finalize details within 60days.
• Multi-modal and multi nation movement will require unification, standardization, alignment of documentation needs. This will require regulatory, customs, infrastructure operators, logistics companies to work together closely.
• Geopolitical reasons behind the program are evident, however business economics only will drive its success. Shippers must see cost savings vs current route (in addition to the promised 40% reduction in lead time). For this, participating nations would need to encourage higher volumes to flow through this corridor; and provide subsidy in initial period.
• Greece port (Piraeus) is 67% owned by Cosco (a Chines liner). China has welcomed announcement of this corridor. Piraeus is one of the many port options from Haifa.
• Israel and Arab world need long term, stable relationships. Israel termed the corridor as “peace railway line,” showing its commitment to bettering relations with ME.
• With reduced volumes from Suez, will it hurt relationships with Egypt? No, the growing trade volumes necessitate an alternate passage. Both routes would co-exist and prosper.
• Multiple handling only leads to longer wait times and damages. True. Each transshipment point will need to devise process, technology, and infrastructure to manage this.

There are Definite Tail winds for IMEE EC

Here is the mythological story of ‘Samudra Manthan.’ Maharishis, devas, asuras along with Shiva, Vishnu came together to churn the ocean of milk for the hidden treasures. It was a herculean task and required all capable and (otherwise) competing forces to come together with a common goal. Fourteen treasures appeared as a result; these were distributed amongst the participants.

 All participating nations see a strong reason and alignment with their respective long-term vison/goals. Investments are planned from each nation and not any one alone. Abundant funds bundled with common resolve in symbiotic relationships is auspicious for IMEE EC.

 In years to come, Arab nations would depend more so on India on its food security, labor, defense equipment, services, infrastructure technology support. As always, stronger trade ties with ME are beneficial for India.

Further, this corridor will give an incentive for the eastern countries like Bangladesh, Thailand, Myanmar for their exports through IMEE EC.

Once the flywheel is in motion, I will not be surprised to see some volumes from/to Gwadar port (BRI) also flowing through this corridor at UAE port.

Do share your feedback below. Let me know which Supply Chain topic/issue you would like me to cover next.

All views expressed in this article are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated.