Winners and losers in shipping crisis

Synopsis: Challenges faced by exporters due to steep rise in ocean freight rates and congestion in various ports of the world.

Introduction

There has been a steep rise in ocean freight rates and congestion in various ports of the world. Indian exporters have complained of increase in freight rates by 300% to 1000% for various destinations and additional charges like emergency revenue recovery charges, cargo declaration charges etc.,

Why there’s been an increase in freight charges?

Increase in freight charges results from the uneven post-Covid economic recoveries of the world’s largest importing and exporting countries. The primary pillars of the crisis are:

– significant fall in the availability of containers

– reduced workforce, fewer shipping vessels operating

– erratic movements in demand for various commodities.

– Additionally, a lag in the supply of timber to manufacture containers, a rise in the number of containers being scrapped than produced further increased the cost of the containers which surged from $1600 in 2021 to $2500 this year.

Who has benefitted out of it?

The obvious winners are the container shipping industry, which reported the best actual quarterly performance  in its history for the second quarter of this year (2Q21). The 11 container lines that represent 64.5% of the TEU capacity made profits of $18.44 billion.

How increased freight rates is impacting Indian Exporters?

It has to be noted that, some Indian products have become relatively more price competitive with regard to their competitors in East Asia and China due to increase in freight rates.

However, the exporters from China, Asia and India are getting less price-competitive with regard to the producers in West Europe and North America due to lower transportation costs from those locations.

What are the complaints raised by exporters?

Other than increased freight rates, the exporters also complain about acute difficulties in getting shipping space, getting containers.

Shipping lines are being diverted to more lucrative routes and giving fewer sailings from India.

Bookings are not given at the contracted freight rates and are forced by the shippers to give higher spot rates through freight forwarders.

Delays in issue of mandated inspection certificates for certain items from nominated agencies.

Some exporters allege cartelisation by the shipping companies.

What are possible long-term implications?

Exporters worry that, if the present trends in shipping continue, then we can see a move from globalisation to localisation or regionalisation for some items.

Also, consumer-led economies are likely to look for alternative markets with shorter trade routes to cut losses. This could severely harm SMEs who are already battling with the pandemic-led economic crisis.

Source: This post is based on the article “Winners and losers in shipping crisis” published in Business Standard on 13^th Sep 2021.