Mumbai: India’s exports to the US in steel containers fell 5.7% in the first 11 months of 2007 over the same period in 2006—an indication that the slowdown in the world’s biggest economy is taking a toll on India’s exports to that country.
The result: suspension of shipping services to the US from India by some firms and freight rates that are almost half what they were two years ago. And the implication is a slower 2008 for India, as far as exports to the US are concerned.
Ripple effect: Some firms have suspended shipping services to the US and freight rates have almost halved from two years ago.
In 2006, India’s exports to the US in cargo containers touched 189,249 forty-foot eq-uivalent units, or FEUs. Such exports were estimated to grow by 10% to about 210,000 FEUs in 2007. An FEU is double the size of a twenty-foot equivalent unit, or TEU, which is the standard size of a container and is a common measure of capacity in the business.
However, till November, exports dropped 5.8% to 164,374 FEUs from 174,372 FEUs in the corresponding period a year earlier, according to latest data available with The Journal of Commerce, a US government publication. The exact quantum of drop in volumes works out to 9,998 FEUs in the first 11 months of 2007 over the first 11 months of 2006. The data is based on bills of landing, documents that acknowledge the receipt of a shipment of goods.
The slowdown in demand has resulted in a fall in shipping freight rates. The freight rate for moving a 20ft cargo container from India to the US east coast is currently around $1,100. The rate was more than double two years ago at around $2,500-2,600 per TEU. In comparison, the freight rate to Europe is in the range of $1,500-1,600 per TEU.
This has forced some shipping firms to discontinue service from India to the US. For instance, the IDX Service, a direct weekly service run by a consortium of four shipping firms from India to the US east coast since 2005 stopped the service in January.
The IDX Service was operated by India’s biggest shipping firm, the state-owned Shipping Corp. of India Ltd, Zim Integrated Shipping Services Ltd, Orient Overseas Container Line Ltd and Emirates Shipping Line FZE.
The service had eight container ships in operation with each of the four partners contributing two vessels. The service connected Jawaharlal Nehru Port, India’s biggest container port in Mumbai, and ports in Tuticorin, Chennai and Mundra with the US east coast.
The slowdown in the US economy has led to overcapacity in the Indo-US east coast sector that accounts for 70-75% of India’s exports to that country. The balance goes to the west coast of US.
The worst hit are India’s garment exports, which have slowed down significantly, said an official at Shipping Corp. who did not want to be identified.
“A lot of shipping tonnage has been withdrawn from the US sector because that sector has not been performing of late,” said Jamshed Safdar, senior vice-president, marketing, at Emirates Shipping Line. In shipping terminology, tonnage refers to the cargo carrying capacity of a ship.
Container shipping lines are now increasingly deploying ships on routes to other Asian destinations, including China and Europe. Container cargo traffic from India to Europe has grown by almost 30% over the last year. As a result, container ships plying to Europe are going full and freight rates on this sector have increased significantly.
“It makes more commercial sense now to run direct shipping services to Europe where the demand is growing,” said Eugene Tan, vice-president, commercial, at Zim Integrated Shipping Services.