Mumbai: Slowing global trade has left the Indian shipping industry high and dry, with the country’s idle goods container capacity set to rise to 750,000 twenty-foot equivalent unit (TEUs) in February from 150,000 TEUs in October. TEU is a standard measure of capacity in the container business.
Freight rates for container ships from India have also fallen by almost 80% over the past six months.
Globally, things have come to such a pass that in Singapore, one of the world’s busiest ports, some vessels are now being used to store empty containers to save on port rentals, according to three different shipping executives.
The fall in demand has also reached Indian shores, where importers are taking at least three weeks to clear cargo before returning the containers to shipping lines, against a brisk three-six days six months ago.
Rough sea: A container vessel at Jawaharlal Nehru Port in Navi Mumbai. About 50% of India’s trade volume is shipped by containers. Ashesh Shah / Mint
And that key indicator of serious trouble, layoffs, has reared its head in shipping, where companies representing foreign shipping lines and firms handling customs clearance and freight forwarding are trimming staff by as much as one-fifth, besides stopping bonuses.
“The slowdown has certainly affected everybody, except a few niche players. The cargo volume has shrunk by 35-45% in last few months. Freight rates have declined by 80%, except in the routes of African continent,” said D.K. Tewari, chief executive officer, MSC Agency (India) Pvt. Ltd, an Indian unit of the second largest container operator Mediterranean Shipping Co. SA. Tewari, speaking on the sidelines of an international conference last week on ports, cargo and logistics organized by industry lobby Indian Merchants’ Chamber said shipping firms are laying off their capacity by idling.
“In October, over 150,000 TEUs were idling. This is expected to reach 750,000 TEUs by early February. However, the container fleet is expected to grow at 14% in 2009, 12% each in 2010 and 2011. This means new ships will exceed idling capacity,” he said.
“Since containerized cargo is a value-added product in the cargo chain...the impact of this recession would be immediately visible in container growth,” said Ramnath Iyer, director (public-private partnership) of credit rating agency Crisil Ltd.
Container ships account for 5% of total cargo ships in the world. Currently, only about 50% of India’s trade by volume is shipped by containers, against a global average of 80-90%.
For now, Tewari said, every single ship is losing money except, ironically, those between India and Africa. Trade on that route was low to begin with and has largely been unaffected by the crash in other economies, he said.
The economic slowdown has also resulted into falling freight rates. “The freight rates on India-UK sector was $1,100 (Rs53,680) for a 20ft container unit and this has come down to $280 to $300,” Tewari said.
A senior executive with a leading Asian shipping company said the freight rates to West Asia had also plunged and at least three shipping lines have discontinued operations out of India owing to slowing down in container traffic. “Freight rate to ferry a 20ft container unit to Gulf is just $90 against $550 three months ago. Initially, the decline of freight rates was only for export cargos. Now it has affected import boxes, too,” he said on condition of anonymity because he is not authorized to speak to the media.
An official at state-owned Jawaharlal Nehru Port Trust in Navi Mumbai confirmed that some lines have discontinued operations while others are sharing services, but declined to give details about the firms.
“The rates of Asia Pacific was impacted first. And this was followed by Europe and Middle East. But when others are discontinuing service, we are starting new services from February,” said Anand Chopra, senior vice-president (container services and marketing) with India’s largest shipping firm Shipping Corp. of India Ltd.
Port-related businesses, such as inland container ports and container freight stations, are also feeling the squeeze.
An executive with a freight forwarding company said some of these companies have cut back from a generous three bonuses a year to just one, while the majority have stopped bonuses altogether. Some of the leading freight forwarding firms are taking steps to reduce staff by 20%, he said, but declined being named.
However, things will look up by 2010, said Iyer of Crisil. “Once this jolt is over, the Indian middle class will have demand for various products. Moreover, various free trade agreements would also help to boost the trade by 2010. But these assumptions are based on provided Indian economy growing at 6.5-7.5%.”