SynopsisIndia, a net importer, has always wanted to export more. When it finally happened, albeit for a brief period, industry didn’t have containers to export goods.
When the buzzing trade routes of India went silent because of a global outbreak and a nationwide lockdown, everything appeared uncertain. Exporters shut down factories and shipping lines had to cancel hundreds of routes — called blank sailing. Exports plunged 60.28% in April 2020. However, as the lockdown restrictions started easing in a phased manner, exports picked up and recovered faster than expected.
Exports grew by 24% in volume terms from July to October 2020, year-on-year. At the same time, imports fell 28% during the period due to reasons such as a slump in domestic demand, the Atmanirbhar Bharat Abhiyaan campaign and a reduction in dependence on Chinese goods. This equation should have cheered India, as it would have helped the country manage its trade deficit and also helped its aim to double its exports to $1 trillion by 2025. But a shortage of containers has made stakeholders grapple with a crucial issue: how will India fulfil the world’s demands if there aren’t enough boxes to pack the commodities for export?
While a host of issues have come together to create this choke global trade, what is more alarming is that the situation is set to get worse soon. In India, this could be disastrous for MSMEs. These small businesses, which don’t have deep pockets or resources like their bigger peers, account for 48% of the country’s exports.
Shruti Saraf, Brand Marketing, Cogoport, explained that shipping lines had slowed down orders for new containers in 2019 because of surplus global inventory. Container manufacturers made 2.5 million TEUs in 2019 as against 4 million TEUs in 2018, according to Cogoport. Then the pandemic happened, causing an unprecedented cascading of events that led to a global shortage in empty containers to export goods.
Generally, shipping containers leave a country packed with goods for export and are recycled back to the country with goods for import. Moving empty containers is a drain on revenue so it makes sense to fill up a box with goods intended for transport. But when there is an export-import mismatch — like what India saw — then empty containers get bunched up and adequate numbers do not reach the country of origin. The pandemic added to this mismatch.
iStockShipping containers leave a country with goods for export and return with goods for import.When China, the first country to be hit by the novel coronavirus, started seeing economic revival, it restarted its export engine. In the beginning of July, Europe and the US saw a shopping spree as the lockdown was lifted. Demand for goods rose and China started exporting to meet that demand. So trade flowed from China to the West. All available containers were rerouted to Europe and North America. However, huge lag in lead times, reduced manpower to handle logistics, Covid protocols and restrictions on vessels created congestion at ports.
Sunil Vaswani, Executive Director, Container Shipping Lines Association, India (CSLA), said congestion at transhipment ports like Colombo and Singapore and in some of the major ports in China, Europe and the key gateway ports in the US West Coast like Los Angeles & Long Beach further aggravated the situation by increasing the turnaround time of vessels and containers. “This eventually affected the availability of boxes in Asian countries, including India. Out of 100 containers entering North America, just 40 moved out. Currently, about 55% of the container fleet is sitting in various ports or on water, as against a normal average of approximately 30%. This has been because of congestion and labour issues at various ports due to the pandemic,” he told ET Digital.
How will you export?
Container movement is taking longer now, said Ajay Sahai, DG and CEO, Federation of Indian Export Organisations (FIEO). “Earlier, when we dispatched new containers from India to the US, it took 60 days. Today, it is taking 120-150 days. There is a considerable delay in each port. This has increased freight costs.”
A recent Drip Capital report stated that freight costs surged to a whopping 300% since the onset of the pandemic.
Sahai added that with a surge in demand for high-volume commodities like metal and agriculture, there was a need for large-sized containers.
CSLA’s Vaswani said the grounding of air freight had a multiplier effect. “In fact, the number of international flights plunged because of the virus and air travel restrictions, pushing some of the air freight business to sea freight, thus putting additional pressure on container shipping,” he said.
As if the container shortage wasn’t causing enough stress on India’s trade environment, a global mishap added fuel to the fire.
On March 23, a 400m container ship, Ever Given, ran aground in the Suez Canal, obstructing a cardinal conduit for global commerce. It left over 400 vessels stranded and held up trade of $9.6 billion a day, according to estimates by Lloyd’s List. The canal was reopened on March 30.
AFPEver Given had run aground on March 23 after losing the ability to steer amid high winds and a dust storm.“The Suez Canal jam was a real blocker to trade,” said Shruti Saraf, Brand Marketing, Cogoport. “The exporter fraternity saw major delays in shipments. Even after the reopening, a vast fleet of vessels had to wait to get their chance to cross the canal. Perhaps more cascading effects are yet to be seen due to port closures in South China.”
The Yantian Port, the third largest terminal in the world, temporarily stopped accepting export container ships in late May. By the time it resumed accepting container ships in June, there was a backlog of 23,000 containers waiting to be exported. On June 24, however, the port said they had restored normal operations.
But the situation caused by the blockade has had a cascading effect. Maersk said unceasing congestion was becoming a global problem. Shipping companies were skipping ports in the region.
The Suez Canal incident affected cargo movement for bookings over a couple of weeks, said Bhavik Mota, Director-Regional Ocean Management, Maersk West & Central Asia. Leading shipping companies tried to work around the blockade. “We put contingency plans in place, thus reducing the impact on customers’ cargo. We even routed some of our vessels around the southern tip of Africa to ensure that our customers’ cargoes were not stuck for too long,” Mota said.
But not all shipping lines could afford to reroute their vessels through the longer and costlier alternative. The long line of stranded cargo ships, analysts said also impacted the container shortage.
iStockCovid outbreak, like the one at the Yantian Port has exacerbated the crisis.For India, Saraf pointed out, the container unavailability affected exports of varieties of rice, basmati, sports goods, leather goods, textiles, sugar, jute, cereals and spices, among others.
Retail and lifestyle exporters were facing challenges in getting their products from India to markets such as North America, said Mota of Maersk. “We have been supporting such customers by letting them use the holding ports in Dubai and Oman for their export cargo that could not find storage space on a ship. In some cases, we have chartered entire ships with empty containers to meet a single customer’s requirement from India. Most export commodities, especially in the agriculture sector, are being stockpiled. We have seen customers use a mix of ocean and air transport to fulfil their immediate commitments,” he said.
Other stakeholders in India, too, sprung into action to mitigate the container shortage. Ports and container terminals reduced the free time on important containers so that the boxes would be put back in circulation without delay. Shipping lines reduced their detention time. “Several measures have helped; shipping lines brought empty containers from outside and the Indian Railways allowed the free movement of containers from gateway ports to hinterlands,” Sahai said.
Vaswani said just 0.8% of the container shipping fleet was idle and that too due to ships that have met with accidents or are undergoing repair and maintenance. “In other words, practically all available vessels have been pressed into service. All this has helped in significantly improving the space and equipment situation and enabled Indian trade to meet its export commitments,” he said.
Steely Resolve Needed
The container shortage is a warning call for India to focus on container manufacturing, a segment dominated by China. In April, Ports, Shipping and Waterways Minister Mansukh Mandaviya announced the development of a container manufacturing facility in Bhavnagar, Gujarat. He said the government was expecting private investment of Rs 1,000 crore and the creation of one lakh jobs into this initiative.
iStockLimited air cargo movement has added pressure for the shipping industry.Industry has welcomed the move. Sahai said this would also give a boost to the Make in India and Aatmanirbhar Bharat schemes, and also reduce our imports. “We have brief gestation period but we have a lot of shipyards, and these shipyards have the space and technology to build the containers in a very short time. Therefore, if the government can also designate shipyards to start manufacturing containers, that would be helpful in accelerating the process,” he said.
While it made strategic sense for India to look at container manufacturing, Saraf pointed out, the real challenge was in acquiring the right compound of Corten steel, a weathering steel used to make containers. “The manufacturing technology is not new to India, but we have never manufactured this kind of steel. Also, steel prices are at an all-time high. Some manufacturing orders are being processed as a pilot and we will learn more about the success rates once they are delivered and tested in two months. Then the feasibility of attaining the economy of scale will come into the picture,” she said.
The container unavailability now gradually appears to see a recovery. Sahai was confident that in the coming months the supply chain would become more efficient, as many developed countries come out of the pandemic.
iStockMaersk said unceasing congestion was becoming a global problem.“Once we can manage this pandemic, the supply chain will be much more efficient. Right now, if my goods are passing through 10 countries, a lockdown in even one of them can cause a disruption in trade. This affects the movement of containers. I’m pretty sure as vaccination increases, we will eliminate this problem,” he said.
But not everyone agrees with the FIEO head.
Cogoport’s Saraf said container shortages and port congestion would persist through 2021, though it would get better with every passing month. And freight rates would stay at the stratospheric level till 2022.
Industry experts pointed to the congestion delays in South Chinese ports because of a rise in Covid cases. In fact, the shipping industry is very clear that the congestion due to closure of Yantian Port has caused widespread problems and there is no end in sight. What is worse is the fact that this is the crucial season when exporters look to fulfill orders in the run up to Christmas.
“The supply chain disruptions indicate what ails the shipping industry. The problems will most likely persist beyond Covid-19,” Saraf added. “This calls for long-term planning. The permanent fix for the current problem lies in increased digitisation of shipping services and improved communication between supply chain partners.”
Until that happens, the crisis probably won’t be contained and trade routes can’t start buzzing anytime soon.
(Editing by Ram Mohan)
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