Despite the already widespread shortage of vessel space and containers, the situation is getting worse. While export prospects are improving as global trade recovers, exporters have been plagued by container shortages and rising container freight rates, which could influence export growth negatively.
The cost of shipping constitutes just a little more than 1% of the final price of manufactured goods when China-Europe rates were substantially lower than what they are now. Shipping costs have risen sixfold due to supply chain bottlenecks in the last year. With prices rising due to a shortage of raw materials, importers are increasing their prices to counteract these shocks, evoking concerns of an inflationary spiral.
What the Stats Say
Drewry World Container Index, which measures the cost of a 40-foot shipping container, has reported that freight rates from Shanghai to Rotterdam have jumped by 596% compared to last year. Similarly, Los Angeles-Shanghai routes have increased by 154%, and the Chinese city's overseas flights have risen by 229%.
In May, there were increases in container freight rates based on the destination of consignments. Freight expenses continue to rise unabated, according to exporters.
"Freight rates are surging continuously. The charges for containers are increasing between $500 to $800 every fortnight," said Ashwin Nayak, founder chairman, Federation of Indian Spice Stakeholders (FISS).
The cost of a 40-foot container to New York is currently around $8,500, compared to $7,000 a month ago. Pre-pandemic rates were $2,000. The container charge for some U.S. and Canada destinations has reached approximately $12,000.
Further adding to exporters' hardships is the container shortage, since it is challenging to find empty containers. The hoarding of containers by China has exacerbated the situation.
“Exporters have a shortage of containers. If you manage containers, the availability of vessels has also become an issue. As a result, exporters are becoming cautious as export costs have also increased," Nayak added.
According to one exporter, “many international players have reduced their export activities, and most exporters prefer booking free on board (FOB) orders rather than cost and freight (C&F) orders. In consequence, we are losing exports to countries such as Australia and Latin America, even though exporters are willing to pay outrageous shipping costs.”
KG Kundariya, former president of Morbi Ceramic Association, believes container shortages and high freight rates have cut the export of ceramic tiles from Morbi by 10%. Currently, buyers are ordering only unavoidable consignments and postponing consignments when they can.
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