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December 10, 2023

Decline of 30% in International freight rates a year, gives relief for exporters

India Inc is set to get a relief in logistics costs with international freight rates plunging by about 30% in April-October 2022 as compared to the previous year. Trade was severely impacted last year, with freight prices sky-rocketing up to 200%, hurting profits of companies across sectors, including engineering, auto components, pharma and medical devices.

The benefit of decline in freight cost shall be negated in engineering and textile sectors, due to the global economic slowdown,” he said. However, average container prices are still 2-3 times higher compared to pre-pandemic levels. In June 2022, average container prices were up by nearly three times as compared to $1,675 in June 2020.

The government’s high export duties on rice (15%) and steel (20% ), and the Russia Ukraine war are also causing disruptions in global shipping, according to Container xChange. Manish Shah of logistics service provider Magnum Cargo, said that both air and ship freight has declined by about 30% year-on-year.

Container traffic at major domestic ports including Nhava Sheva, Kochi, and Chennai is dropping. Box volumes in the Indian ports reportedly dropped from 977,000 TEUS (twenty-foot equivalent units, a measure of volume in 20ft long containers) in August to 892,000 TEUS in September.

The industry was brought to a virtual standstill in October 2021 with a massive shortage of shipping containers globally. However, in October 2022, the trend has been reversed.

The declining rates of container prices indicate a weakening demand and excess supply.

The fall is being attributed to overall low demand, global headwinds and a decline in exports, India’s exports fell 16.6% in October to $29.8 billion, with a sharp contraction in gems & jewellery, engineering goods, chemicals, and pharmaceuticals, according to official data released on November 15.

Over the last six months, prices of containers have been steadily dropping in India’s biggest ports such as Mundra and Nhava Sheva. Average container prices in India dipped over 16% in October YoY to $3,363, while the decline for the January-October 2022 period is over 22%, according to data from Container xChange, an online container logistics platform.

“India has weathered the rising global disruptions with more resilience than many other countries. However, the ripple effect of disruptions well over past two years has caused significant market and container imbalances in the Indian shipping industry. Companies have slowed ordering (and carriers cancelling sailings) due to low demand and high inventories, demand will bounce back once these inventories exhaust. The declining rates of container prices indicate a weakening demand, and a surplus (of containers).

The wider this gap, the lower the container rates and prices, Christian Roeloffs, cofounder & CEO, Container xChange said.

CareEdge Ratings Director Maulesh Desai said steel, automobile and pharmaceutical industries are the major beneficiaries due to the drop in dry bulk and container freight rates. “Care Edge Ratings expects 18-20% reduction in freight cost for these companies”.

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