Shutdown of a few Chinese ports has a spiral effect on Kerala shipments
The recent shut-down of some of the Chinese ports following rising Covid-19 infections has begun to bite Kerala’s exporters. They fear the emerging situation will lead to a further surge in freight costs and worsen container shortage woes, especially when shippers across sectors are gearing up for Christmas demand.
With lockdown restrictions being eased in a phased manner post the second wave of Covid-19 in India, trade sentiment was expected to pick up and recover quickly. However, currently, one of the key issues troubling traders is the shortage of containers because of which there are bottlenecks pertaining to inventory supply, blank sailing and port congestion.
All India Spices Exporters Forum says that those who have signed off long-term CIF (cost, insurance and freight) contracts are losing as customers seldom agree to revise contracts. As a result, exporters are unable to compete in the global market due to increased freight cost and adhere to commitments given to international customers. This leads to a delay in delivery or cancellations of orders.
The freight from China to Europe and the US have sky-rocketed and hence shipping lines prefer this route, which is also affecting Indian traders. Boxes which are not returning from the US and Europe are creating further shortages. Additionally, congestion at some of the major ports in China and Europe has aggravated the situation by increasing the turnaround time of vessels and containers. As a domino effect, the availability of boxes in Asian countries, including India was affected, spices exporters said.
For coir products, the rising shipping rate has added to their cost. A 20-foot container to the US which was available at $3,000 is now at $14,000, while that of a 40-foot has gone up to $18,000 from $5000, says Mahadevan Pavithran, Managing Director, Travancore Cocotuft.
“Even if you are willing to shell out this much money, you will get a message from shipping lines saying that the booking has been declined due to shortage of containers. There are no boxes available in Kochi as Chinese imports have come down,” he told BusinessLine.
The grounding of air freight due to fewer international flights on the back of air travel restrictions had a multiplier effect. Some of the air freight business is being pushed to sea, thus putting additional pressure on container shipping.
Shaji Baby John of Kings Infra Ventures, a Kochi-based seafood exporter, said that the monthly increase of freight cost for reefer containers was 10-15 per cent. The soaring rates will have an impact on the financials of many companies. The freight cost to the US alone has witnessed a five-fold increase, besides creating a container shortage. Exporters have started batting for domestic manufacturing of containers considering the availability of space in shipyards as well as technology. Some manufacturing orders are being processed as a pilot and they need to be reviewed to test the feasibility of attaining economies of scale.
China has cornered world trade by systematically investing in shipping and container manufacturing. However, India has not even started investing or subsidising these industries in its efforts to boost exports. By withholding containers, China is dictating world freight, thereby putting India in a disadvantageous position vis-à-vis Chinese products, adds Pavithran.