Freight rates to US, Europe soar on rising crude price

Leading shipping lines operating in India said ocean freight rates to the US and Europe increased to $1,900 and $1,650, respectively, for every twenty foot equivalent unit (TEU) in the past five months.

The increase follows a sharp rise in crude price, which touched $132 a barrel from $99.62 in January 2008 and currency fluctuations against the dollar, according to a senior executive in a US-based shipping line.

M Rafeeque Ahmed, chairman of footwear exporting Farida Group, said customers in the US are not ready to share or compensate the loss since contracts have been signed a year ago on a cost, insurance freight (CIF) basis, which will be paid by the shipper.

"Some of our members have freight on board (FOB) contracts for exports and will not be affected. But those who have CIF contracts are trying to negotiate with foreign buyers to compensate for the increase in freight cost," said Vishnu Mathur, executive director of the Automotive Component Manufacturers Association. Members of this body annually export nearly $4 billion.

"We have to cut production cost and make some compromises in packaging. Some long-time customers, however, are willing to share a small percentage of this increased cost," said Mohul Sinha, head of exports for Arvind Brands (a division of Arvind Mills).

Shipping companies said that they have no other choice but to pass on the burden to exporters by increasing the bunker adjustment factor (BAF), also called bunker surcharge or fuel cost adjustment factor (CAF).

Starting June, members of the India, Pakistan, Bangladesh Ceylon Conference (IPBCC) operating between India and the UK, Rotterdam, Hamburg, Antwerp, Copenhagen, Gothenburg and Oslo will increase the BAF 32 per cent to $370 a TEU and CAF 20.64 per cent to $258 a TEU. Fuel is the second main part of a vessel's operating costs. Marine diesel fuel touched $626 a tonne this week, a 250 per cent increase over 2004.