Bangalore: The cost of moving cargo containers from India to Europe has plunged by nearly 40% in the past one month as the global economic downturn begins to slow demand for goods to the continent.
Shipping rates have fallen to $650-700 (Rs31,655-34,090) for a standard cargo container, from about $1,050-1,100 till August.
“The situation every year in October is that cargo wait(s) for ships... This year, ships are waiting for cargo,” said the India head of a European container shipping firm, who did not want to be named as company policy does not allow him to speak to the media. “Ships sailing to European destinations are not going full…the capacity utilization is less than 80%.”
Exporters in India were shipping an average 12,000 standard containers a week to customers in Europe between January 2007 and August 2008, accounting for nearly 18% of the country’s total exports.
A standard container is a 20ft steel box that can carry as much as 28 tonnes of cargo.
“We don’t find the volume rush this year... Due to (the) financial crunch, large stock of stones, granites, are lying in warehouses in Europe. There is no demand for this commodity now,” the executive said.
Unsteady: An average of 12,000 standard containers were being shipped a week to Europe between January 2007 and August 2008. Ashesh Shah / Mint
“India used to ship about 1,400 standard containers of rice, sugar, stones, granites and marble slabs a week to Europe. This cargo is lost just like that,” he added, noting that the Union government’s decision to ban export of rice and sugar has also contributed to the slide.
“As a result, the base ocean freight rates have dropped to about $650-700 a container from about $1,050-1,100 a few months earlier,” said an official at German container shipping firm Hapag Lloyd AG. He didn’t want to be named.
The rates do not include surcharges levied by carriers to account for changes in ship fuel prices and currency fluctuations.
Ocean freight rates on the India-Europe sector are expected to fall further as more shipping capacity is deployed on the route.
Beginning 19 November, United Arab Shipping Co. and Hanjin Shipping Co. Ltd will add Jawaharlal Nehru and Pipavav ports to their Far East-Europe service.
“This will further aggravate capacity and push down rates,” said the Hapag Lloyd executive.
Currently, about 40 ships owned by firms such as Hapag Lloyd, CMA CGM SA, MSC Bhd, Hamburg Sud, Shipping Corp. of India Ltd, K-Line, Safmarine Container Line, Maersk Line and Rickmers-Line GmbH and Cie. KG haul cargo from India to Europe.
Shipping executives say more container carriers operating on the Far East to Europe route are diverting ships via India to pick additional cargo, adding to the capacity glut and pushing rates further down.
“There is a time lag of four-six months in the manufacturing and logistics process. So, the effect of the global financial crisis will manifest itself in lower cargo volumes through March-April next year,” said an executive at Hamburg Sud on condition of anonymity.
The current drop in rates comes a few days ahead of the winding up of operations by a group of 15 container shipping lines known as the India, Pakistan, Bangladesh, Ceylon (IPBC) Conference.
Members of a group, such as the London-based IPBC Conference, offer equitable freight rates, standardized shipping practices and regular scheduled services between designated ports. The members also agree on freight rates irrespective of market conditions. But the IPBC Conference, which operates between Europe and the Indian subcontinent, will end on 17 October as the European Commission has decided to repeal the anti-trust immunity given to such groups.
The new regime is expected to benefit India’s exporters and importers.
“From 18 October, container shipping firms who were part of the IPBC Conference can raise rates only when there is a demand-supply mismatch and not as a matter of routine,” said an executive at the state-run Shipping Corp.
“Everyone will have to be very very careful from 18 October. Carriers can be fined up to 10% of their annual turnover or even excluded from trade by the European Commission if they violate rules,” Jan Boje Steffens, managing director of German shipping firm Rickmers-Line GmbH and Cie. KG, had told Mint during a recent visit to India.
India’s Competition Act also prohibits liner conferences because they are considered price cartels.