How the termination of transhipment facility for Bangladesh will impact logistics
India’s abrupt decision to rescind a key transhipment facility for Bangladeshi exports has introduced significant disruptions in South Asia’s trade logistics, particularly affecting the air cargo sector. This policy shift, effective immediately, has raised concerns among freight forwarders, shippers, and policymakers about the stability of regional trade agreements and the resilience of cross-border supply chains.
Pillar of regional trade
Established in 2020, the transhipment facility allowed Bangladeshi goods to transit through India’s land customs stations to seaports and airports, facilitating exports to destinations such as Nepal, Bhutan, and beyond. This arrangement was particularly beneficial for Bangladesh’s ready-made garment (RMG) sector, which accounts for over 80 percent of the country’s export earnings. The facility also supported the movement of goods to landlocked countries, aligning with World Trade Organization (WTO) provisions on transit freedom.
Sudden withdrawal
India’s customs department issued a circular rescinding the 2020 order, citing delays and higher costs that were reportedly hindering India’s own exports and creating backlogs. An external affairs ministry spokesperson stated that the decision was made to address these logistical challenges. However, the abrupt nature of the termination has caught many stakeholders off guard.
Shippers and freight forwarders
The immediate consequence of this policy shift is increased logistical complexity for Bangladeshi exporters. Without access to Indian transhipment routes, exporters must rely more heavily on domestic ports like Chittagong and Mongla, which are already grappling with congestion issues. The Port of Chittagong, handling over 70 percent of Bangladesh’s trade, has faced congestion rates averaging 84.3 hours, according to a 2017 report.
Freight forwarders now face the challenge of rerouting shipments, potentially leading to longer transit times and higher costs. The disruption is particularly acute for time-sensitive goods, such as perishable items and fast-fashion apparel, where delays can erode profit margins and customer trust.
Air cargo industry
The airfreight sector is not immune to these developments. With the transhipment facility’s closure, Bangladeshi exporters lose a critical overland route to Indian airports, which served as gateways to global markets. This loss is especially significant for high-value, low-volume goods that benefit from air transport’s speed and reliability.
Moreover, the increased reliance on Bangladesh’s own airports, which may lack the capacity and connectivity of larger Indian hubs, could strain existing infrastructure. This shift may also lead to higher airfreight rates due to reduced economies of scale and increased demand on limited resources.
Legal and policy considerations
From a legal standpoint, the termination raises questions about compliance with international trade agreements. The WTO’s Trade Facilitation Agreement emphasises the importance of transit freedom, particularly for landlocked countries. While Bangladesh is not landlocked, the facility’s role in facilitating trade to landlocked neighbours like Nepal and Bhutan underscores its regional significance.
Policy analysts suggest that the move may reflect broader geopolitical dynamics. Relations between India and Bangladesh have experienced strain in recent months, and trade decisions may be influenced by political considerations. The sudden nature of the withdrawal, without prior consultation or phased implementation, could undermine trust in bilateral agreements and regional cooperation frameworks.
Lessons for regional logistics
The abrupt termination of India’s transhipment facility for Bangladeshi exports underscores the fragility of regional logistics networks and highlights the pressing need for greater resilience in cross-border supply chains. For policymakers and air cargo stakeholders, the episode offers several critical insights. Chief among them is the imperative to diversify transit routes; an overreliance on a single corridor leaves exporters vulnerable to sudden policy shifts.
Developing alternative trade pathways and strengthening domestic logistics infrastructure—particularly ports and airports—can mitigate these risks and enhance operational autonomy. Furthermore, the incident reinforces the importance of sustained regional cooperation, where open dialogue and predictable engagement between governments can help stabilise trade flows and prevent disruption. Finally, the absence of formalised, enforceable legal frameworks leaves cross-border arrangements susceptible to abrupt reversals.
Establishing clear agreements with robust dispute resolution mechanisms would offer greater security for shippers, investors, and the broader air cargo ecosystem.
