The Rise (And Rise) Of Freight Costs For Indian Businesses

Every time a consignment has to be booked, it is anyone's guess what the charges for containers and freight rates are going to be, says Arun Garodia, whose company produces and exports various steel engineering products.Goradia's lament sums up the trouble that many importers and exporters are facing. Freight costs, which soared earlier this year, have remained high and, in some cases, risen further. Add to that, the volatility in rates and uncertain availability of containers has made life difficult for businesses shipping goods in and out of the country.The latest blow —a partial shutdown at China’s Ningbo-Zhoushan container port for over a week after a lone worker tested positive for the Covid-19 virus."In an already high pressure environment, what's happening in China is the latest setback for container freight rates," said Garodia, who is also vice chairman at the Engineering Exports Promotion Council.The shutdown of at Ningbo-Zhoushan port—the world's third busiest—follows other one-off incidents like the Suez Canal blockage earlier this year and a one-month shutdown of China's Yantian port following a Covid outbreak among port staff. Such disruptions, along with surge in trade due to pent-up demand and stimulus packages, has meant that freight rates are sky-high.The Baltic Dry Index, a globally tracked shipping cost benchmark, surged to 3,976 on Aug. 19, 2021, the highest since June 2009, according to Bloomberg. That's a rise of 307.4% from January 2020 before the pandemic hit and a rise of 189.4% since January this year. The Shanghai Containerized Freight Index, which represents rates to and from Chinese ports, is at a record high. It rose to 4,281.5, a rise of 318.6% since January 2020 and by 49.2% since January 2021. .Saturated ports in the U.S. and Europe, shortage of dock workers, truckers and empty containers, aggravated by a nexus between major shipping lines and freight forwarders continue to drive up freight rates.Arunava Paul, Associate Director, Care Ratings.In the absence of an India-specific indicator and amid sharp volatility, the precise range of prices is hard to gauge. One indicator—the Container Shipping Price Indices by lane provided by Bloomberg—shows that freight rates from the Indian sub-continent and the Middle-East have nearly doubled for shipments to Australia, North, Central and South America, and Europe. This data is available till June 2021. .However, data available with CARE Ratings shows that the cost increases out of India have been even starker, at least for the most commonly used size of containers.The average freight rates for a 20-foot container in August were three to five times higher compared to the pre-pandemic prices when freight rates were largely stable, according to data compiled by CARE Ratings. After rising through 2021, freight rates in India have become even more volatile in July and August and have continued to see a sharp rise because of port shutdowns in other parts of the world, said Paul. Upward revisions are taking place on a weekly or a fortnightly basis and spot rates depend on availability as well, with a weeklong queue for bookings, he said..In response to the rising freight rates, manufacturers continue to raise prices. Those who can't are compromising on margins or losing business. Garodia said with the constant rise in freight rates and now volatility, there is fear that buyers overseas will eventually lower imports and resort to sourcing domestically, instead. To be sure, such concerns are yet to materialise, he said.Exports rose to a record high of $35.4 billion last month, while imports, too, continued to pick-up. But, a change in trend is being observed, said a press release by the Trade Promotion Council of India. .A change in trend is being observed in exports, which now is more focused towards the proximate markets, where the container turnaround time is shorter and freight costs are affordable, compared to the long haul distances like Europe and US. If this trend continues, India might see a decline in the exports in coming months as these are major markets of our exports.Trade Promotion Council of India.Maersk Ratchets Up Profit Guidance After Freight Rates Soar.For now, there is no respite in sight.“Shipping may remain disrupted for another 6 months (till vaccines/infections cause a large enough population to have Covid-19 antibodies), hurting production (like in autos) and/or end-demand due to high prices/unavailability,” wrote Neelkanth Mishra of Credit Suisse in a note dated August 24, 2021.Global liners expect tight demand-supply conditions to continue, added a research note by JP Morgan dated August 17, 2021. Global trade is seeing fresh ‘stressors’, with more Asian countries, including China, combatting the latest infection resurgence fueled by the Delta variant, the note said. In particular, China’s Covid-zero stance, despite its still relatively low cases, has led to very drastic tightening of procedures related to onshore movements, air and maritime included, and is placing further strains on global supply-chain efficiency, it added. Archit, a third engineer at a global container logistics company, has seen this first hand.If someone on a ship tests positive for coronavirus, the ship will go for anchorage outside the port and all the crew members need to be tested. After 14 days a test will be repeated and, most likely, the ship will be vacated if anyone is positive, he said. Then a team will fumigate the ship. Of course, in the meanwhile, cargo operations come to a full stop, he said..Rising Freight Costs And Time On India's Busiest Trade Routes

The Rise (And Rise) Of Freight Costs For Indian Businesses

Sky-high and volatile freight rates, along with non-availability of containers, are haunting Indian businesses.

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The Rise (And Rise) Of Freight Costs For Indian Businesses

Sky-high and volatile freight rates, along with non-availability of containers, are haunting Indian businesses.

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