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Rising freight costs are nullifying advantage from falling rupee

Rising freight costs are nullifying advantage from falling rupee
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First Published: Tue, May 27 2008. 10 59 PM IST
Updated: Wed, May 28 2008. 05 15 PM IST
Kochi: Exporters of spices, tea, coffee and textiles fear they would be forced to foot shipping bills when contracts come up for renegotiation this year, as buyers are shying away from paying rising freight charges that have nearly doubled in recent months.
Buyers are already reluctant to sign the so-called freight-on-board contracts, where they have to pay shipping charges, said Sushma Srikandath, chairperson of the All-India Spice Exporters Forum.
For example, buyers in the US, who used to pay freight charges of $1,200 (Rs51,480) for each 20ft container till some months ago, have to now pay $2,000.
Freight charges in Europe have increased to $1,600 from $1,000 earlier, she said. Several buyers now want exporters to pay for freight, which would force exporters to keep out of such contracts, though some firms with three-year contracts have split the cost, Srikandath added.
The spice industry has been insulated from the rising rupee against the US dollar as a global shortage gave India an advantage, but the recent fall in the value of the Indian currency could be offset by higher freight costs, Srikandath said.
Some exporters are already being charged a bunker surcharge to cover the rise in fuel prices, she said.
Ramesh Raja, a coffee exporter and managing director of Ramesh Exports (P) Ltd, said exporters would feel the pinch after the current contracts end.
For those whose six-month contracts expire in June, renegotiations would begin next month when the rising freight charges would have to be factored in.
Coffee exporters have no freight-on-board contracts with Italy, which buys nearly 25% of India’s coffee exports of more than 200,000 tonnes. West Asian countries buy about 10% of Indian coffee exports.
Freight charges for buyers in Italy have increased to $1,450 per 20ft container from about $900 at the start of the year, making it difficult for Indian exporters to find buyers who will bear this cost.
Competing Latin American countries such as Brazil have the advantage of lower freight rates, Raja said.
The falling rupee is some solace, only if the currencies of competing nations are not losing against the dollar as well, he added.
Most tea exporters have contracts where the importer pays for freight, but most of these agreements end in June, and negotiations for new contracts could turn the tide, said N. Sriram of Contemporary Tea Co.
However, exporters might be able to even out the impact of rising freight charges because of stable supply in India against a global shortage, the depreciating rupee, and growing demand for tea, especially in Egypt and Iran, where India might make a dent this year, said D. Maheshwari, president of the United Planters Association of Southern India.
The textile industry does not have such an advantage. Textile exporters had just started getting orders again in the wake of the weakening rupee, but higher freight rates have taken away a good part of the windfall, saidRaja Shanmugham, managing director of Warsaw International at Tirupur in Tamil Nadu.
Freight charges for textiles, which is normally 6% of the value of the commodity, have gone up by 1% over the past month.
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First Published: Tue, May 27 2008. 10 59 PM IST