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Scarcity on high seas hurting India’s exports

The freight rates on several trade routes have gone up beyond 150-200% since March. In some segments such as India-US East Coast, rates have gone up much more than three times.Premium
The freight rates on several trade routes have gone up beyond 150-200% since March. In some segments such as India-US East Coast, rates have gone up much more than three times.

  • A shortage of shipping containers thanks to China’s quick recovery and Atmanirbharta is pushing up trade costs.
  • Shipping ministry officials say the government is keen to set up a container manufacturing facility in the country. A high-level meeting was held recently to review its feasibility.

MUMBAI : Abraham Tharakan, the chairman of Kochi-based Amalgam Group, is an unhappy man. The promoter of one of India’s largest seafood exporters has seen firsthand how the business—to pack shrimp and squid to the US and Chinese markets—has been throttled by an unprecedented shortage of shipping containers.

Tharakan believes restrictions imposed on imports to promote self-reliance (Atmanirbharta) have created an imbalance in the availability of containers for exports. Compounding this shortage of import containers is a reinvigorated Chinese economy that has drawn shipping lines to its ports in hordes.

“Most of the empty containers are being taken to China as its economy has already recovered in the last quarter. India faces a severe scarcity of containers, especially refrigerated (reefer) containers," said Tharakan, adding that the government is yet to take any policy initiatives to mitigate the unprecedented crisis.

There’s been a 30% drop in India’s seafood exports till December 2020, according to industry officials. Thanks to the pandemic, several orders were cancelled, payments were delayed or reduced, leading to difficulty in generating new orders, the officials added. Another factor is India’s newfound zeal for self-reliance, which comes at a time when the country’s trade is already reeling under an economic recession and the pandemic.

The supply-side constraints are not restricted to seafood exports alone, of course. The shortage of containers and drop in the number of ships calling at Indian ports have led to an inevitable spike in freight rates, impacting every export segment. In addition, the ports in India continue to be one of the most expensive in terms of vessel-related charges, which keep the freight cost for companies firmly high.

The freight rates on several trade routes have gone up beyond 150-200% since March. In some segments such as India-US East Coast, rates have gone up much more than three times.

A shipping line executive who is working at Nhava Sheva, which houses India’s largest container port Jawaharlal Nehru Port Trust (JNPT), agreed container freight rates are shooting up arbitrarily. “A Mumbai-based exporter of machinery parts has booked a 40-foot container slot today (February 3) for Nhava Sheva-New York for a whopping $12,000. It used to be around $2,800-$3,000 just three-four months ago," he said on condition of anonymity.

When Mint reached out to Ajay Sahai, director general of Federation of Indian Export Organisations (FIEO), he said: “Globally, shipping firms had employed smaller vessels as the pandemic hit trade. Containers were shipped to transhipment hubs such as Singapore and Dubai in smaller feeder vessels. This eventually led to a huge backlog of containers at some ports and reduced the pace of rotation with each container taking much longer in transit and destuffing at the destination."

Many, including Tharakan, strongly believe that a shipping cartel is working against India’s interests. “Shipping companies are bringing smaller ships to Indian ports. This increases the demand for container slots artificially and the freight cost," said the head of a Mumbai-based non-vessel operating common carrier (NVOCC), who has a slot arrangement with several leading shipping lines.

Leading engineering goods exporters have requested the government to set up a regulator to fix the monopolistic practices of shipping lines. “Large increases in freight charges are impacting the competitiveness of our exporters," the Engineering Export Promotion Council of India (EEPC) said in a statement recently.

“If there is a cartelisation, the Competition Commission of India (CCI) should definitely step in," added Sahai.

No respite

Fact is, there is no respite from the increasing freight rates. Faced with a delivery deadline, exporters have had no option but to book the cargo at the exorbitant rate quoted by the shipping lines and forego their profit margins. As complaints pile up, the shipping ministry and India’s director general of shipping are completely helpless.

“During the lockdown and in subsequent months, many shipping lines had either cancelled voyages or skipped Indian ports. They are slowly coming back on steam. But we are still 20% less than the pre-covid levels. Immobility of container ships and containers had already created a huge imbalance in the supply of containers. The lack of containers in turn hit the trade badly and many suffered losses," said C.R. Nambiar, chief executive of Mumbai-based Seahorse Ship Agencies.

He expects the rates to subside after the Chinese New Year when there will be reduced quantities of cargo to be shipped.

In addition, ships that were idling during the covid-induced lockdown have been re-routed to more profitable routes such as trans-pacific, leading to supply and demand gaps on major intra-Asia trading routes. As the number of container ships calling at Indian ports fell, many operators and NVOCCs were forced to prune their slots. This led to further chaos in the container market.

There is a shortage of bulk cargo ships as well, though the situation is not as dire as it is for container ships, according to Sahai.

Industry officials said the leg-up in India’s exports in December and January, especially in some products such as steel, iron ore, pharmaceutical products, engineering goods and cereals is believed to have created an additional imbalance in the demand-supply situation.

Shipping lines have, however, denied that there is a cartelisation at work. “We are buying and deploying million-dollar assets on various trade routes. Things were pretty bad during the first half of 2020 as many countries including India went into lockdowns. Shipping companies returned some of their leased ships as the business dropped and losses mounted," said a commercial director of a leading shipping line on condition of anonymity.

There are bigger changes at play, feels Capt Deepak Tewari, chairman of Container Shipping Lines Association (CSLA) and managing director of MAC Agency (India). He said the problem has stemmed from a sudden change in India’s export-import composition and volumes.

“India’s exports have risen 18% in volume terms in July-December 2020 as against the corresponding period in the previous year. Imports have dropped 28% in volume terms. Earlier imports were higher than exports and it is reversing now. Earlier, shipping lines were repositioning containers elsewhere, but now lines are scrambling to bring empty containers to India at a huge cost. Now there is an issue of space constraints. We are ready to bring bigger ships if the exporters are ready to plan their exports and book the slots in advance," said Tewari.

Line executives said almost all shipping lines have increased their capacity now, and almost all terminals are packed. Leading shipping lines have launched a couple new services as well – one on the India-US East Coast route and another one on India-Africa route, says one.

The fact is that nobody could predict the change in trade composition and the spike in volumes. FIEO says India may end 2020-21 with a 12% dip in exports in value terms at $285-290 billion. But the target for the next fiscal 2021-22 is $350 billion. According to the Financial Stability Report of the RBI, India’s merchandise exports contracted by 21.2% in the first half of 2020-21 due to the demand and supply disruptions caused by the pandemic. Imports shrank even more sharply—by 39.7%.

Madhavi Arora, lead economist at Emkay Global, feels exports in the January-March quarter may suffer another dip on account of the new wave of pandemic in the US and Europe. “In December, exports were almost flat on an annualised basis even as they showed sequential improvement. There was a lot of steam in the global market in the last few months," she adds.

Obstacles at ports

The government-run ports have moved out of container handling over the last two decades, leaving it in the hands of private companies, mostly foreign giants. Among the conventional ports, only New Mangalore and Mormugao are still handling containers, while rest all have privatised their container terminal and handling operations.

While the shortage of containers and the resultant spike in freight rate make life difficult for exporters, high port charges (called marine cost in shipping parlance and it includes berth hire, pilotage, etc) have been a big deterrent for the trade growth. “A port of call in Indian ports would cost $50,000-$55,000 in marine costs which is more than double what transhipment hubs in Singapore and Dubai charge," says Nambiar. This is in turn paid by the country’s export-import trade.

Why are vessel-related charges among the highest in the world? “A primary reason is the recurring dredging cost – both maintenance and capital. The big question is: should the trade be made to pay for it? The owner of a privately-held shipping behemoth in Mumbai, with interests in container terminal operations, wants the government to pick up the tab. He cites examples of Hamburg, Rotterdam and Amsterdam, where the respective municipalities shell out dredging costs since ports are owned by them. More number of ships and bigger vessels means more business and higher employment opportunities for their municipalities.

“When I bring a ship to Mumbai Port with around 40,000 tonnes of palm oil, it creates massive employment opportunities in unloading, transporting, packaging, re-transporting and such," the shipping company owner told Mint. If the ship doesn’t dock at Mumbai, some other city will benefit by allowing the ship to dock.

Changes in government policy also have an immediate impact on the trade. In January 2020, when the government announced sudden restrictions on imports of refined palm oil, several ships were stuck at various Indian ports. It was a bid to help domestic refiners raise their plant utilisation rates. The quick move by India, the world’s biggest edible oil buyer, had hit many importers, especially those who bought the cargo from Malaysia, the second-biggest producer and exporter of palm oil.

Another important factor that adds to the shipping cost is `land’. Since the real estate is expensive in cities, port service providers in city-based ports end up paying huge rent for the land leased for freight stations, container depots, warehouses and such. “If someone wants to build a warehouse for maize storage in Mumbai, somewhere near the port, Mumbai Port Trust should not charge the company a similar lease amount that Taj Hotel (a tenant of Mumbai Port) pays to the port. Trade can’t afford to pay such high rates," said an industry official.

The transportation cost has also gone through the roof with the diesel prices having risen to a new peak in the country. “The container haulage charges levied by the government-owned Container Corporation of India (Concor), which transports containers on the rail, is pretty high," says Nambiar.

Some solutions

Sabyasachi Hajara, former chairman of Shipping Corporation of India (SCI) and currently on the board of two private ports, said once ports become corporates, they will be nimble-footed. “The Major Port Trust Act of 1963 is being revamped currently," he said, referring to the Major Port Authorities Bill, 2020, which Lok Sabha cleared in September 2020. Apart from last-mile connectivity, lack of depth at terminals to accommodate big ships and poor night-navigation facilities are key issues.

The shipping ministry officials said the government is keen to set up a container manufacturing facility in the country. A high-level meeting was held recently to review its feasibility. FIEO claims that India’s remittance bill for transport-related services stands at around $65 billion, which works out to around 10% of India’s total exim trade.

Sharad Kumar Saraf, president of FIEO, rues the absence of a domestic container shipping line. “We have proposed to the government to promote container shipping in the country with tax concessions and fiscal support," says Saraf. Exporters suggest that even if one-third of the domestic container cargo goes to the proposed Indian shipping line, it will be a successful venture.

Anto T. Joseph is a senior journalist.

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