India’s exports to US start slowing down

India’s exports to US start slowing down

Mumbai: Export of Indian goods in steel containers to the US slowed during the first nine months of the year, compared with last year—new evidence of the impact of a slowing of the world’s largest economy.

But ironically, several Indian exporters say the voluntary cancelling of US orders, driven primarily by turmoil from a subprime crisis in markets and falling home prices, has come as a boon because of the surging rupee that has cut deeply into their dollar profit margins.

Some 76% of India’s exports are billed in dollar terms. A weak dollar would mean that Indian exporters would earn fewer rupees.

“If voluntarily the US buyer cancels the order booked a few months in advance, the Indian exporter would be very happy because his profit has been wiped out completely" from the strong rupee, claims G.K. Gupta, president of the Federation of Indian Export Organisations (Fieo). He said goods are being shipped to the US on orders booked earlier.

However, no matter what happens to the rupee in the coming months, the real impact of the US slowdown on Indian exports there is likely to be felt in the coming months.

“Today, we are handling export containers at the terminal, orders for which were placed by buyers in the US about four-six months back," says Prakash Tulsani, chief operating officer of Gateway Terminals India Pvt. Ltd, which runs one of the three container terminals at the Jawaharlal Nehru Port. “The effect of a slowdown in the US will be felt only in the next three-four months," he adds.

Priya Safaya Fotedar, policy director at Fieo, says Indian exporters were working on minimal margins that were shrinking from the appreciating rupee. “Coupled with this, the (American) housing bust will take a toll on India’s export to the US in the coming months," she said. “It’s not a very happy scenario we are talking about."

JN Port is India’s biggest container port and accounts for about 60% of the container cargo handled at all ports in the country.

In 2006, India’s exports to the US in cargo containers touched 190,000 forty-foot equivalent units, or so-called FEUs. Such exports were estimated to grow by 10% in 2007 to about 210,000 FEUs.

“But till September, the exports were almost flat at about 145,000 FEUs," says an executive of Hapag-Lloyd, one of the top five global shipping firms. “Taking a conservative growth rate of 10% a year, India should have exported close to 160,000 FEUs till September. Unless the trade picks up dramatically during the last quarter, which is highly unlikely, the target of achieving 210,000 FEUs during 2007 looks very remote."

Officials at other container shipping firms also reckon that container traffic growth from India to the US is likely to be flat this year. “At best, it may grow by a paltry 1-2%," says an executive with APL, the container shipping arm of Singapore-government owned Neptune Orient Lines Ltd. Both executives didn’t want to be named as they are not authorized to talk to the media.

Hapag-Lloyd is part of a consortium of container shipping companies that runs a direct weekly service called Indamex from JN Port, located in Navi Mumbai, to the east coast of the US. The other members of the consortium are APL, CMA-CGM, Mac Andrews, NYK Line and Mitsui OSK Lines.

A twenty-foot equivalent unit, or TEU, is the standard size of a container and is a common measure of capacity in the container business. An FEU is double the size of a TEU.

The worst hit are garment exports that have slowed down tremendously, says the APL official. India’s exports to the US east coast account for 70-75% of the total exports to the country while the balance goes to the west coast. Container shipping lines run four direct services a week to the US east coast, either alone or through a consortium, from JN Port.

Apart from the Indamex service, the world’s biggest container shipping firm, the Maersk Line, operates a weekly direct service called MECL1 from JN Port to the US east coast. A consortium of Emirates Shipping Line, Shipping Corp. of India, Zim Line and OOCL also operates a direct service called IDX, while Hanjin, K Line, Yang Ming Line and UASC together run another direct service called SINA. Maersk and IDX also operate separate direct services from Tamil Nadu.

With the market falling short of growth estimates, there is now overcapacity on the India-US east coast sector and, as a result, the rates for shipping containers there have dropped by almost half from what they were two years ago.

“Two years ago, the rates for shipping a TEU container from JN Port to the US east coast was about $2,500-2,600. Now, a TEU container can be shipped from JN port to the US east coast at around $1,200-1,300," says the APL official. The west coast trade is more stable and there is less pressure on rates, he adds.

Meanwhile, there is one saving grace for Indian exporters. “As far as volumes are concerned, it is Europe that is going bananas now," says K. Balsara at CMA-CGM, the world’s third largest container shipping firm.

“The container traffic from India to Europe has grown by almost 30% over the last year. Container ships plying to Europe are going full and the freight rates are up," he adds.