Shipping chaos may continue till demand moderates

In the last few weeks, the ocean freight rates for exporters have doubled or even trebled for certain destinations in the Gulf, Europe, and North America. As usual, the exporters are asking for some government initiatives and as usual, the government may not do anything.

Since the Houthi attacks on commercial vessels started in the Red Sea towards the end of last year, major shipping lines have been re-routing their vessels around Africa. That has raised their operating costs and extended the voyage time by about 15 days, especially for Europe-bound shipments. Even so, the situation had somewhat stabilised by March but thereafter the shipments from China have surged. The Chinese producers, facing a slowdown in domestic consumer demand, have cut prices to boost their exports and utilise their idle capacities better. Another reason for the steep increase in exports from China is the apprehension that from next month, Chinese origin goods will attract higher tariffs in the United States. Also, many Chinese producers are trying to set up manufacturing facilities in Latin America, especially Mexico, to get around any restrictions in the United States on goods originating in China. The consequent spurt in demand for shipping services from China have pushed up the freight rates from there to Europe and America into five figures.  Even the container leasing rates have shot up in China. Sensing the opportunity, the shipping lines have diverted their vessels to China, missing several scheduled sailings from India and other Asian countries. With reduced sailings, the freight rates from India and other countries have also gone up by about half of what the Chinese pay. The container supplies are also under a bit of strain.

The disruption in the shipping schedules and imbalance in port traffic, equipment, and containers have also caused congestion at the ports, especially the transshipment ports like Singapore, Jebel Ali, Colombo etc. So, the vessels have to wait longer at anchorage, sometimes for 8-9 days. That puts up the costs for the shipping lines that they pass on to the shippers.  Even at Nhava Sheva and Mundra, the ships have to wait longer than earlier. The situation is worsened by vessels cancelling their scheduled sailings. The situation has grown so serious that some of the shipping lines have stopped accepting bookings.

The Federation of Indian Export Organisations (FIEO) says that the government should focus on developing an Indian shipping line of global repute that will reduce our outward remittances on transport services that can only increase with rising exports. We already have the government-owned Shipping Corporation of India (SCI), which can expand its fleet and become a global player. That is, however, unlikely to happen as our share in global merchandise trade is only 1.8 per cent. Shipping volumes from India are a fraction of shipping volumes from East Asia. So, the government may let the SCI take a call on becoming a global player in shipping to its commercial judgement.

The present chaos in the shipping industry is likely to continue till the peak season lasts till September. Until the demand in Europe and North America for merchandise from Asia moderates, the situation may not improve. For now, the exporters have to appreciate that the rise in freight rates is not an India-specific issue. The situation is much worse in East Asia.