Bangalore: India’s exporters and importers have been hit by significant hike in costs of transporting goods from factories and warehouses to ports and back as soaring oil prices force road transporters and railways to hike their rates.
The cost of moving a cargo container by road from north India to Jawaharlal Nehru Port in Navi Mumbai, outside Mumbai in on the west coast, has gone up by 12-15% recently after fleet owners passed on the increase in fuel prices to their clients, said Priya Safaya Fotedar, director (policy) at the Federation of Indian Export Organisations, or Fieo India’s apex export promotion agency. Some 60% of India’s export movements are on this route.
Container train operators are also bracing up for a hike in transporting cargo containers from 1 August after the union railway ministry decided to hike the haulage charges levied on them by 15-20%. The increased haulage charges will be passed on to the trade, though the quantum of hike is yet to be decided by operators.
Exorbitant ride: Container train operators are bracing up for a hike in transporting cargo containers from 1 August after the railway ministry decided to hike the haulage charges levied on them by 15-20%. (Photo: Ashesh Shah/ Mint)
Haulage charges set by the railway ministry become the base rate for container train operators, who add their own capital and operating costs to arrive at the rates to be charged from exporters and importers. These operators pay haulage charges to the ministry for using the track, locomotives, signalling infrastructure and staff of the railways.
The inland transportation costs have always been high in India when compared with global standards. The cost of transporting a cargo container over 1km in India is 50% higher than what it costs to move a container over 1km in the US, according to Kenneth Glenn, President South Asia and managing director, APL (India) Pvt. Ltd, the Indian unit of Singapore-based APL Logistics. APL is the container shipping and logistics arm of Singapore-government owned Neptune Orient Lines.
“This has been further aggravated by the jump in oil prices and hike in haulage charges announced by the railway ministry,” said Ajay Sahai, director general, Fieo.
The inland transportation costs in India are, at times, more than the ocean freight.
“The cost of moving a container from northern India to Mumbai is sometimes more than the cost of shipping a cargo container by sea from Mumbai to Dubai,” says Sahai.
The galloping oil prices are also having an impact on ocean freight as shipping lines frequently revise the fuel surcharge they recover from shippers. The cargo handling charges at some of India’s ports are also expected to rise in the next few days. For instance, DP World, the world’s fourth biggest container port operator owned by the Dubai government, will increase rates at its container terminal in Chennai port by 10% from 1 August. Chennai is India’s second biggest container port after JN Port.
“The increase in transportation costs are hurting us. It’s eroding profitability,”said J. C. Mongia, a senior manager at Noida-based heavy engineering machinery maker, the Indian Sugar and General Export Import Corporation, or ISGEC.
The firm ships about 600 twenty-foot equivalent units or TEU’s of engineering goods a year to the Gulf region and Africa. A TEU is the standard size of a container and is a common measure of capacity in the container business.
The increase in inland transportation and port handling costs have added to the already high transaction costs in India. The country spends about $1,148 for handling an import cargo container and $820 on an export container. In comparison, Singapore spends $367 on an import container while China spends $390 on an export container.
“Because of the high transaction costs, small manufacturers are not able to penetrate the global market,” said Sanjeev Rishi, adviser, Worlds Window Infrastructure and Logistics Pvt. Ltd, which runs an inland container depot at Loni in Uttar Pradesh.
The surge in inland transportation costs comes at a time when exporters finally got a respite from an almost two-year long appreciation of the rupee. As a result, exporters earned lesser rupee on a dollar.
The situation has changed with the rupee depreciation by almost 10% since April and is expected to fall by another 9% until March next year, according to the World Bank.
“With the rupee depreciating against the dollar, the government has announced its intention to withdraw from 30 September several benefits earlier given to exporters to protect them from a rising rupee,” said Fotedar at Fieo. The worst affected is the small and medium enterprises sector, which is the second largest employer after agriculture, she added.
Sahai said India’s exporters will have to renegotiate their contract with overseas buyers to account for the rise in input costs and inland transportation charges. But, this could be difficult considering the slowdown in the US and Europe, India’s biggest trading partners.
“Exporters need to rework their strategies to deal with the situation,” added Fotedar.