The shortage of containers and sky-high freight rates are a threat to Indian exports that rose to a record in the first quarter of FY22. This is eroding the profitability and competitiveness of exporters

After attaining crisis proportions earlier this year, shipping containers are again in short supply, which is increasing logistics costs for exporters and making businesses uncompetitive.

In April, the government had declared victory over the initial container crisis but now the shortage is back at a time when export volumes are more than ever before as industry is clearing inventory and global demand is rising.

The issue has been brought up by export-promotion councils and industry bodies have raised the issue in regular meetings with the government, which is quickly responding with steps to resolve the issue, an official said.

“This includes short-term solutions such as providing priority berthing to bulk carriers to reduce turnaround times, special drives to expedite clearance of unclaimed cargo and increase the availability of containers, as well as long term solutions such as ramping up container manufacturing,” he added.

India’s exports surpassed $95 billion to become the highest ever in a single quarter during the first quarter of FY22. Exporters are worried  they will miss the bus at this crucial time.

“While freight increase is a global phenomenon, we may be suffering more as we have a fairly large MSMEs in exports, who have very less negotiating power. We require a large shipping company in India as we remit about $ 65 Bn every year as transport charges overseas and yet remain at the mercy of foreign shipping lines,” Federation of Indian Export Organisations (FIEO) President A Sakthivel, said.

Currently, the public sector Shipping Corporation of India has a market share of less than 5 percent of the country’s total shipping business. FIEO has suggested that the government provide some fiscal support either through liberal lending or through tax benefits to set up an Indian shipping line which may be looking at a $ 100 billion market.

The industry is also seeking freight subsidies. The demand has been more pronounced from manufacturers in hinterland states like Uttaranchal, Himachal or Assam without access to the sea and where transport costs are estimated to be 5-6 percent higher.

“Being away from the sea ports we are competing with companies in the coastal states. The high freight cost lowers our overall profit margins in the international market preventing us from going for capacity expansion. It is increasingly becoming difficult for us to penetrate new markets,” said Arun Shukla, a functionary of Engineering Export Promotion Council India from Himachal Pradesh.

Skyrocketing freight charges

Freight rates have risen sharply. FIEO has told the government that the cost of sending a 40-feet container to the United States has soared to $6,200-$6,500 more than three times the pre-pandemic rate of $2,000. The average rate for Europe has jumped to $5,500 from $1,200-1500.

Freight rates for shipments to West Africa and other many destinations have also gone up by five to six times in the past year and a half. This has severely hit the profitability and competitiveness of exporters who quote a delivered price including freight.

The Container Shipping Lines Association (CSLA) (India), which represents the 25-largest foreign container shipping lines operating in India, says operations are being conducted under strict guidelines and prices have been reduced to offer some benefit to industry.

“We have received communication from the government regarding ways to lower the shipping costs, but prices have risen across all markets and global players have to factor that in,” a senior CSLA functionary said.

Where it began

The majority of global merchandise trade is dependent on standard-size containers carried on mega seaborne vessels run by a relatively small number of shipping lines.

The crisis began in late 2020 due to a sharp mismatch in import and export volumes, leading to a shortage of containers available for exports, at ports across India. The situation worsened as economies in the region and beyond began opening up at the same time after lockdowns.

As industries opened up, orders for goods poured in and exports began piling up broadly around the same time in all countries, leading to congestion at major ports.

Non-availability of space in vessels calling on Indian ports and delayed availability of certain destinations, particularly in East Africa, were the other issues affecting trade. As a result, both the demand, and prices for containers had skyrocketed.

Source: Moneycontrol