COMMENT – India’s export challenges: container shipment angst

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The principal mode for transport for dry, non-bulk cargoes is containers, transported by dedicated Container-ships. Containers carry around 90 percent of the world’s non-bulk cargo. They are usually of a standard size, either 20-foot or 40-foot containers.

This helps not only in standardizing shipping requirements and optimizing freight costs but also in unloading to various modes of transport used for the last mile connectivity. It is estimated that 80 percent of all goods are carried by sea. The global container trade, pegged at 14 trillion dollars in 2019, accounts for 60 percent of all sea-borne trade.

In the last fifty years, the global container carrying capacity has swelled by over 1200 percent, aided by technological innovations. The International Chamber of Shipping estimates that more than 50,000 merchant ships are currently trawling the oceans. In 1980, 102 million MT was carried by containers which have swelled to 1.83 billion MT by 2017. Between 1980 and 2021, the deadweight tonnage (DWT) of container ships has increased from about 11 million MT to around 294 million MT. Some of the top global shipping companies are:

RankShipping CompanyTotal ShipsTEU Capacity
    
1Maersk7114,131,158
2Mediterranean Shipping Company5903,922,390
3COSCO Group5003,010,511
4CMA CGM Group5543,009,272
5Hapag- Lloyd2561,776,545
6Ocean Network Express (ONE)2241,614,493
7Evergreen Line2001,330,785
8HMM Co. Ltd.74750,872
9Yang Ming Marine Transport Corp.89628,463
10ZIM98422,926

Buffeted by global events, the container shipping industry is adept at navigating choppy waters. But 2020 has been unprecedented. The covid-19 pandemic induced lockdown has stalled economic progress in all countries. The engines of growth, factories, and manufacturing units saw massive tapering-off of operations to render a large number of containers to idle at ports.

To stabilize costs and erosion of ocean rates, carriers were forced to reduce the number of vessels deployed at sea. Empty containers were left at ports, especially by Asian traders in North America and Europe. This resulted from the 1-way traffic, with no return cargoes to take the containers back to other ports where they were required.

China acted fast to contain the pandemic and resume work while most countries were crippled by state-imposed restrictions. The resumption of exports from China saw the remaining containers in Asia heading towards North America and Europe, with not many back-haul cargoes, resulting in a shortage of containers in Asia. The massive workforce disruptions gave little time to clear the large backlog before fresh vessels started arriving.

North America currently faces a 40 percent imbalance. After economic activities resumed post subduing the first wave of pandemic, demand for shipping containers saw an unexpected surge. With blank and cancelled sailings of container ships, containers were in high demand. 

Inventories fall

Input supply lead times increased while inventories fell dramatically. The increased demand and supply chain disruptions led to a massive impact on freight rates. This will trigger a spike in inflation as small players may struggle with liquidity constraints. The major impact of inflation will be passed through the supply chain to consumers. Imported goods are expected to bear the major brunt of inflationary trends. 

Market participants estimate transportation cost has increased from about USD 1,500 to USD 6,000-9,000 per container by February 2021. The shortage has also increased the prices of new containers, as manufacturers now demand higher charges. Chinese manufacturers, who dominate the container-manufacturing market, are now charging USD 2,500 for a new container against USD 1,600 last year. In the previous six months, container rental rates have also spiked by about 50 percent.

Adding to the container shortage, the blockage of the Suez Canal heaped pressure on the already strained global supply chain. This will lead to the hurrying of ships running behind schedule to make up for the lost time. The result would be increased waiting and unloading times at some ports.

More than 90 percent of India’s trade by volume and 75 percent by value is sea-borne. Containerized imports saw a great fall from July-August 2020. The shortage led to scheduled vessels being cancelled. As India slowly eased the lockdown restrictions, the surge in industrial activity saw a spike in demand for containers. Exporters were willing to pay a premium but containers were not readily available.

The container shortage has impacted the export of rice, hand tools, sports goods, leather goods, textiles and sugar. Total shipment of sugar in January 2021 was 0.33 million MT against 0.80 million MT in the same period the previous year.

Second wave compounds problem

The current second wave of the pandemic has compounded the problem for India as it battles container shortages. Many countries, starting with Indonesia, have started advising port authorities to carry out strict surveillance on people/goods entering their countries from India through airports, ports, and cross-border posts. Stringent quarantine rules have been implemented. This will create more supply chain bottlenecks.

Countries, notably, South Korea and China, have been proactive in container management. South Korea has deployed nine extra vessels on the Trans-Pacific route to help local manufacturers. China’s state-owned shipyard, COSCO Shipping Heavy Industry has converted one freshly built paper-and-pulp carrier to transport the containers. More such conversions are on the anvil.

State-backed companies and governments are working with alacrity to smoothen disruptions on the supply side of global trade to avoid loss of business.

In India, the Indian Railways have permitted free to-and-fro movement of containers from ports to Inland Container Depots (ICD’s). To improve availability, India is also targeting to manufacture containers. Close coordination between shipping lines and exporters has resulted in better understanding and planning. This has resulted in the reduction of wait time for availability of containers from 2-3 days to less than a day.

The business fraternity is toying with many ideas to improve the situation to reduce free time and detention periods. More efficient unloading systems are also being experimented with. Global transportation continues to be in flux as freight rates are forecasted to remain high throughout the year.

The multiple waves of the pandemic are challenging trade and transport companies. Businesses continue to look for silver linings on a bleak horizon. 

Bhavna Shah is Regional Head India and Sri Lanka, Malaysian Palm Oil Council

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