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In recent geopolitical developments, on April 8, 2025, India withdrew the transshipment facility, citing congestion and logistical delays. India’s decision to withdraw the transshipment facility extended to Bangladesh has sparked a debate on regional integration, economic dependencies, and evolving strategic interests in South Asia. This decision, reportedly influenced by comments from Bangladesh’s chief advisor Mr. Yunus regarding India’s Northeast states, characterised in his statement as being “landlocked and hence dependent on Bangladesh”, represents not only a recalibration of bilateral relations but also an indication of deeper, cyclic patterns of friendship and rivalry between the two neighbours.
Bangladesh, a significant exporter in South Asia, relies on transshipment through India for trade with landlocked neighbors like Nepal and Bhutan, and to a lesser extent, Myanmar, which shares a border. Transshipment involves transferring goods through Indian land customs stations, ports, and airports to reach final destinations. This facility, introduced in June 2020, was crucial for streamlining exports, particularly for readymade garments, to third countries including Nepal, Bhutan, and Myanmar.
While the official reason focuses on logistics, some reports mention recent diplomatic tensions. Bangladesh’s Chief Adviser Muhammad Yunus made remarks during a visit to China, suggesting greater Chinese economic influence in Northeast India, which may have complicated relations. However, Indian officials have not confirmed a direct link to the withdrawal.
Historical Context and the Rationale Behind Transshipment
What Is a Transshipment Facility?
A transshipment facility is essentially a logistical arrangement whereby goods are unloaded, transferred, and reloaded from one transport modality (or vessel) to another along an international trade route. For Bangladesh, this facility allowed seamless transfer of cargo arriving at its ports, particularly the bustling Chittagong and Mongla harbours, to serve not only its domestic market but also to act as an international hub for neighboring countries. This arrangement is especially beneficial where neighbouring regions might lack direct ocean access or modern port facilities.
Key Features of a Transshipment Facility:
- Intermodal Connectivity: The facility bridges various transportation networks (sea, rail, road), ensuring efficient movement of cargo.
- Customs Coordination: Simplified customs and regulatory procedures reduced transit times and costs.
- Trade Facilitation: Enhanced efficiency in cargo handling supported larger volumes of international trade.
- Economic Multiplier: Improved logistics typically attract more business and investment along the ports’ hinterland regions.
Historical Background of the Transshipment Facility in South Asia
Historically, the transshipment facility provided by Bangladesh came to prominence in the early 2000s with the liberalisation of trade policies throughout South Asia. Both India and Bangladesh, despite sharing a long and intertwined colonial history, had competing, but also complementary economic interests. The policy was also in line with WTO and aligned with India’s Look East Policy. The facility was designed to ease the export-import traffic for countries like Nepal, Bhutan, and Myanmar, where overland logistics might have posed significant challenges.
Over time, this facility transformed into a critical economic instrument not only for Bangladesh’s port economy but also for fostering deeper trade interdependencies within the region. Prior to the current withdrawal, statistics revealed that Bangladesh’s ports handled cargo worth billions of dollars annually, including significant transshipment volumes destined for India’s landlocked northeastern states.
Benefits of the Transshipment Facility for Bangladesh
Research suggests Bangladesh’s exports to Nepal, Bhutan, and Myanmar via transshipment through India are significant, estimated at around 100 million USD in 2022-23. Nearly all exports to Nepal (39.58 million USD) and Bhutan (20.37 million USD) used transshipment through India, given their landlocked status. About 50% of exports to Myanmar (33.38 million USD, or 16.69 million USD) likely used this route, as a conservative estimate.
Nepal and Bhutan: Both are landlocked, with no direct sea access, making Indian routes essential. It is reasonable to assume nearly 100% of exports to Nepal (39.58 million USD) and Bhutan (20.37 million USD) used Indian transshipment, totaling 60 million USD.
The Catalyst for Withdrawal: Changing Tides in Diplomatic and Economic Relationships
The Controversial Statement by Bangladesh’s Chief Advisor
Recent reports indicate that Bangladesh’s chief advisor, Mr. Md Yunus publicly stated that India’s northeastern states are “landlocked” and consequently dependent on Bangladesh for trade and logistics. While not entirely unfamiliar to the existing trade dynamics, the Northeast has long grappled with connectivity challenges—such a statement was perceived as provocative. Its significance lies in highlighting an asymmetric dependence whereby Bangladesh had become indispensable to India’s regional logistics network.
The northeastern region of India, which includes Assam, Arunachal Pradesh, Manipur, Meghalaya, Nagaland, Mizoram, Tripura, and Sikkim shares extensive international borders: 1,596 km with Bangladesh, 1,395 km with China, 1,640 km with Myanmar, 455 km with Bhutan, and 97 km with Nepal. Despite these vast boundaries, the region is connected to the rest of India by a slender 22-km passage known as the “Chicken Neck” corridor.
India has long backed Bangladesh’s trade interests by granting Bangladeshi goods, except for alcohol and cigarettes, one-way, zero-tariff access to the expansive Indian market for over two decades. Bangladesh’s ambition to set up a strategic base near the Chicken Neck with the help of Chinese support, evidenced by the invitation for Chinese investment to refurbish the airbase at Lalmonirhat near India’s Siliguri Corridor has not gone down well for India.
The Global Trade Research Initiative (GTRI) issued a circular in 2020 which allowed the transshipment of export cargo from Bangladesh destined for third countries. This was achieved by using Indian Land Customs Stations along the route to Indian ports and airports, thereby smoothing the process for Bangladesh’s exports. The recent government notification, however, has terminated this transshipment arrangement with immediate effect. Nonetheless, it stipulates that any cargo which had already entered Indian territory under the previous system will be permitted to exit according to the existing procedures.
Key aspects of the statement include:
- Focus on Dependency: By emphasising dependency, Mr. Yunus indirectly suggested a diminishing of India’s strategic autonomy regarding its northeastern region.
- Geopolitical Overtones: The remark reflected deeper undercurrents of rivalry, as historical ties between India and Bangladesh have often oscillated between cordial cooperation and acute competition.
- Domestic Reactions: The statement not only inflamed sentiments within Bangladesh but also triggered a reassessment within India, where policymakers have grown increasingly wary of dependency on a neighboring nation, however historically friendly their ties might be.
The Role of Indian Northeast: Landlocked or Not?
While Mr. Md Yunus’ assertion focused on the logistical challenges faced by the Indian Northeast, it is important to note that the region is not entirely landlocked in the traditional sense. Rather, it is a region with limited direct access to major sea ports, necessitating reliance on neighbouring transit routes. For decades, government initiatives have sought to address these challenges by developing dedicated inland waterway projects, constructing new road and rail links, and boosting air connectivity. However, infrastructural limitations and bureaucratic hurdles have meant that transshipment through Bangladesh remained an expedient solution until now.
Bangladesh’s Likely Reaction on Withdrawal of Transshipment Facility?
India’s decision to withdraw the transshipment facility, which previously allowed Bangladesh to export goods to third countries via Indian territory, is likely to prompt a range of reactions from Bangladesh. This facility was a significant logistical advantage for Bangladesh, particularly for exporting goods like readymade garments. Its removal could have economic, diplomatic, and strategic implications, shaping Bangladesh’s response in several ways. Below are the possible reactions Bangladesh might adopt, based on economic impacts, diplomatic strategies, and geopolitical considerations.
Geopolitical Balancing
The decision comes amid complex regional dynamics, including India’s concerns about Chinese influence in South Asia and Bangladesh’s evolving foreign policy. While the withdrawal may strain bilateral relations, potentially exacerbated by Yunus’s remarks favouring Chinese economic roles in the region. Bangladesh is unlikely to escalate tensions significantly. Instead, it may:
• Maintain Dialogue with India: Given extensive ties in security, energy, and trade, Bangladesh will likely work to de-escalate friction while addressing the facility’s loss.
• Balance Relations with China: Strengthening ties with China for trade support could be pursued cautiously to avoid alienating India further.
Economic Context and Limits of Impact
The economic fallout may be tempered by the fact that the withdrawal does not affect exports to Nepal and Bhutan, key markets for Bangladesh. However, for other third-country exports, the loss of cost-effective transit through India could challenge Bangladesh’s competitiveness, particularly in time-sensitive sectors like textiles. This partial impact may moderate the urgency of Bangladesh’s reaction but still necessitate adaptive measures.
Expression of Concern or Disappointment
Bangladesh is likely to voice concern over the withdrawal due to its potential to disrupt trade logistics and increase export costs. The facility enabled efficient transit through Indian ports, airports, and land customs stations, and its absence may complicate exports to third countries (excluding Nepal and Bhutan, which remain unaffected). Bangladeshi officials might issue public statements highlighting the economic challenges and urging India to reconsider, targeting both domestic audiences and international partners to emphasize the issue’s significance.
Diplomatic Engagement and Negotiations
Given the historical cooperation between Bangladesh and India, such as through initiatives like the BBIN Motor Vehicle Agreement, Bangladesh may seek to engage India diplomatically to address the issue. Possible actions include:
• Negotiating Reinstatement: Bangladesh could propose talks to restore the facility or secure alternative transit arrangements, leveraging their shared economic ties.
• Raising the Issue Regionally: While less confrontational, Bangladesh might bring the matter to regional forums like the South Asian Free Trade Area (SAFTA) to seek broader support or solutions.
This approach would reflect Bangladesh’s interest in maintaining constructive relations with India despite recent tensions, such as those sparked by Chief Adviser Muhammad Yunus’s remarks during his March 2025 visit to China.
Exploration of Alternative Trade Routes
To mitigate the logistical challenges, Bangladesh may look for ways to bypass reliance on Indian transshipment:
• Direct Sea Routes: Increasing use of its own ports, such as Chittagong, for direct exports could reduce dependence on Indian infrastructure, though this might raise costs and transit times for some markets.
• New Partnerships: Bangladesh might strengthen ties with other countries, such as China, which has shown interest in regional infrastructure projects. Yunus’s comments about Bangladesh being a “guardian of the ocean” for Northeast India during his China visit suggest a potential pivot toward deeper logistical cooperation with Beijing.
Strategic Adaptation and Long-Term Planning
The withdrawal could prompt Bangladesh to reassess its trade and infrastructure strategies:
• Domestic Infrastructure Development: Bangladesh might invest in upgrading its ports and airports to handle more export traffic independently, reducing future vulnerabilities.
• Diversification of Trade Routes: Exploring new transit agreements with other neighbors or enhancing regional trade frameworks could help Bangladesh avoid over-reliance on any single country.
