Winners and losers in shipping crisis

The steep rise in ocean freight rates and congestion in various ports of the world have thrown up winners and losers.

The steep rise in ocean freight rates and congestion in various ports of the world have thrown up winners and losers.

The obvious winners are the container lines that have reported the best actual quarterly performance by the container shipping industry 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. Assuming that other lines that do not publicly report had similar per TEU results, the total profit for the sector in 2Q21 was $28.6 billion, says the McCown Container Results Observer. Revenues for the sector in the second quarter were $88.9 billion giving a net margin of 32.1%. These higher transportation costs and commodity prices are invariably passed by the intermediaries to the consumers, who lose by paying higher prices at the retail stores.

The massive demandsupply mismatch for ocean transportation services from China and East Asia to North America and Europe have so boosted the freight rates in those sectors that some of the Indian products have become relatively more price competitive vis-a-vis their competitors in East Asia and China. However, the exporters from China, Asia and India are getting less price-competitive vis-à-vis the producers in the geographical neighborhoods of West Europe and North America due to lower transportation costs from those locations. ‘If the present trends in shipping continue, we will move from globalisation to localisation or regionalisation for some items’, says Amit Goradia, a leading exporter.

Indian exporters complain of increase in freight rates by 300% to 1000% for various destinations and additional charges like emergency revenue recovery charges, cargo declaration charges, peak season surcharge, premium freight charges, higher terminal handling charges, cancellation charges, charges for cargo stuffed beyond certain weight limits and so on.

They also whine about acute difficulties in getting shipping space, getting containers, shipping lines diverting vessels to more lucrative routes and giving fewer sailings from India, not giving bookings at the contracted freight rates but forcing the shippers to give higher spot rates through freight forwarders, shutting out export cargo even against confirmed bookings, rolling over the shipments to the next vessel and making exporters pay the port demurrages for the goods not taken on board, mandating inspection certificates for certain items from nominated agencies, delays in issue of such certificates by such agencies, insisting on handing over the cargo to them for transportation from Inland Container Depots to the ports and charging a hefty sum for doing so, cutting down the free period for repositioning the containers and so on. Some exporters allege cartelisation by the shipping companies.

The container lines deny these accusations and say that higher charter hire, longer waiting time at the ports, travails of the seafarers, higher investments for moving towards de-carbonization,higher fuel prices, non-release of containersat the destination ports, market forces, regulations and commercial considerations dictate their priorities. The issues are not India specific but global in nature and the problems are not likely to go away till the first quarter of 2023, they say.

So, the exporters and importers have to learn to live with the problems. Given the context, the decision of the government to release the pending dues of the exporters under various export promotion schemes will help them cope with the difficulties somewhat.

Article Reference: Indian Exporters

About Author: TNC Rajagopalan, Eminent Contributor on Business Standard

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