Freight shipping costs have been going through the roof over the last few months, causing exporters to lose business from several countries.
The freight cost to both Europe and the US have increased by 100 per cent, and to places such as American West Coast and the UK there is an increase of over 200 per cent over the last quarter.
“We do a lot of business in South America. The cost of a 40 foot high cube container from India was around $4,000 for the entire fare about four months back. Now it has increased to $10,000” Makrand Appalwar, MD of specialty packaging firm Emmbi Industries said.
Firms in the US and Europe import from India because of the cost arbitrage. But, countries like South America, East Europe have similar labor cost structures as India and import from the country due to technology and ease of operation. Appalwar said many buyers are not ready to make long term commitments for import. “My buyer in South America is already saying the cost from India is getting difficult to manage so they are contemplating moving to Romania or Turkey.”
Milan Thakkar, CEO of construction material manufacturing firm Walplast said he too is losing export orders. “We somehow continued to manage our business in the Middle East despite the freight rate hike. But we lost our business in West Africa and few Far East countries where the cost has gone up by more than 400 per cent.” He says, for these countries on an average the cost of shipping has increased by more than 200 per cent over last year.
There has been a shortage of containers since the last year due to the disruption in the supply chain caused by the pandemic. But, as demand is growing, the exporters are finding it difficult to book space on vessels. In addition, the fuel price growth that started at the end of last year is also influencing the rates.
While the price rise is attributed to the demand supply market dynamics, many believe that since a handful of firms control the shipping lines in the country, they are monopolizing costs to take advantage of the increasing demand. “During the last 6-8 months the freight charges have jumped from $800 to $2500. While a reasonable appreciation can be justified to fuel price hike, this massive increase witnessed in India allude to a sinister plot of artificial shortage creation and cartelisation by shipping lines,” said Anil Bhardwaj, Secretary General, Federation of Indian MSMEs (FISME).
He added, this needs to be probed by the Commerce Ministry and Competition Commission of India as to why the difficulty of getting reasonably priced containers is seen only in India and not in China or Vietnam.
“India should look at developing its container roadmap very seriously especially if we want to move towards self-reliance. In times to come this problem will accentuate as we work towards reducing imports and boosting exports in the country,” said Ajay Sahai, Director General, and Federation of Indian Export Organization (FIEO).