Mumbai: The cost of exporting goods on container ships from India to West Asia is set to rise by about 60% per twenty-foot equivalent unit (teu) from $350 (Rs14,245) to $550 (Rs22,385), effective from 20 August.
Higher cargo volumes and lower vessel capacity are forcing container shipping lines to raise rates on this sector.
Teu, the standard size of a container, is a common measure of capacity in the container business.
With this, the ocean freight rates are set to go up by more than 100% in just the past two months and exporters fear that it may affect exports from India to West Asia, particularly Dubai. Before the rates started going up, they were at about $220-250 per teu about two months ago.
“This will increase the transaction cost and reduce the competitive advantage of Indian exports in the global market,” said Vijay G. Kalantri, president, All India Association of Industries.
“The freight rates from India are being hiked because the cargo volumes have grown and also the capacity has dipped, with vessel owners diverting their ships to destinations where they can earn higher freight rates,” said D.K. Roy, chief executive officer of Mumbai-based cargo forwarding firm Staarship Global Logistic.
The cost of moving container cargo from India to the US has also risen recently.
Container shipping lines such as Maersk Line, CMA-CGM, Hapag-Lloyd and Mitsui OSK Lines have hiked the freight rates from India to the East and West coasts of South America, Central America and the Caribbean by $200 per teu and $400 per forty-foot equivalent unit (FEU) from 1 August.
An FEU is double the size of a teu.
According to Roy, the cost of moving an FEU container from China to New York is about $5,000 that involves a travel time of 28 days. Whereas the cost of shipping an FEU from India to New York is about $2,200 with a transit time of 18 days. “Though the difference in travel time is 10 days, the freight rate difference is about $2,800,” said Roy.
Similarly, the freight rate for transporting a teu from India to the UK is about $1,000. In comparison, it is about $2,000 from Pakistan to the UK.
“So shipping lines are tempted to pick up more cargo from Pakistan than fromIndia to earn more revenues,” Roy added.
Shipping lines attribute the hike in freight to the demand-supply mismatch.
“The freight rate between India and the Middle East is entirely governed by supply and demand. Until recently, the rates on this sector were so low that it was unremunerative for lines to operate,” said Julian M. Bevis, area line and operations manager (South Asia) at Maersk Line, the world’s largest container shipping firm.
The Indian freight market has been “distorted” by the fact that the port terminal capacity was not adequate toservice ships that come calling to load and unload cargo, Bevis added.
“If you want the sea freight rate in India to operate effectively, you need to have the infrastructure in terms of adequate container terminals, rail and road infrastructure.”