Waves of change – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/editorial/even-as-container-rates-are-at-artificial-highs-shipping-industry-dynamics-are-set-to-change/article33412455.ece

Even as container rates are at artificial highs, shipping industry dynamics are set to change

Indian exporters have been hit by a rise in containerisation costs at a time when exports are already struggling. Container rates are ruling at over 100 per cent over the same levels last year, and 30-40 per cent above July levels. The spike in rates since July coincides with the opening up of economies and the restocking that followed, the contraction of air freight capacity, demand for specific items such as PPEs — and, perhaps most significantly, the rise in pricing power of shipping lines. According to the UNCTAD Review of Maritime Transport 2020, the top five ship-owning companies accounted for 52 per cent of world fleet tonnage as of January this year. Half the world’s tonnage is owned by Asian companies. A consolidation has taken place in the shipping industry in the aftermath of the Great Financial Crisis, when a slump in the world trade volumes had led to a price war between global shipping majors, leading to prices dropping below operational costs. This time, the industry has responded to the pandemic shock by reducing available capacity — through cancellation, rescheduling and re-routing of trips. As a result, prices are strong despite the prospect of global container throughput contracting by 7.3 per cent this year (according to UNCTAD), corresponding with the estimated 4 per cent drop in world trade.

Containerised shipping, which allows for its multi-modal delivery, has revolutionised goods trade, its growth coinciding with globalised production in automobiles, electronics and garments in particular. However, the disruption of China-centric supply chains in the wake of Covid has led to efforts to create other hubs, dispersed around South-East Asia. This will alter container trade practices. For instance, container ships have attained their peak size, as the UNCTAD report points out. Digitisation could optimise efficiencies in port handling. India’s port management practices should take these patterns into account, so that all stakeholders benefit.

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