Global freight rates have dropped 20% since the Ukraine war started on February 24, in signs that a supply-chain disruption is easing, although the rates are still 13% higher than a year earlier.

Trade sources told FE that while container availability has improved for Indian exporters in recent weeks, small and medium players are still facing this issue. Nevertheless, the easing rates have brightened India’s export prospects at a time when it is eyeing a second straight year of robust growth.

According to Drewry’s composite World Container Index, the rate for a 40-foot container declined to $7,579 as of June 9 from $9,477 as of February 24, but it’s still up 13% from a year before.

Freight costs had spiked in 2022, as demand for goods surged following an industrial resurgence in advanced economies. But a lockdown in select cities of China in recent months to contain a fresh surge in Covid cases has put a leash on Chinese demand for containers. Similarly, global growth has come under strain after the Ukraine conflict caused international commodity prices — especially of oil — to surge. These factors have resulted in the drop in shipping costs.

However, given the spike in global oil prices and uncertainties around the Ukraine war, shipping costs may not go down considerably from the current level. Moreover, once Chinese demand starts rising again, freight costs may inch up.

Mahesh Desai, chairman of the engineering exporters’ body EEPC India, said the situation has improved, both in terms of shipping costs and container availability.

Global freight rates started surging at a fast pace in the aftermath of the Covid outbreak in 2020 and hit a peak of $10,377 per 40-ft container in late September 2021, according to Drewry’s index. The rates started easing thereafter to $9,051 as of December 2, before inching up again to $9,180 by March 10. Of course, exporters concede the shipping costs have spiralled across the globe and India isn’t an outlier.

Sunil Sawla, former president of Indian Oilseeds and Produce Export Promotion Council, said the situation is still far from the normal (pre-Covid scenario). “But it’s better than the worst exporters have faced in terms of post-Covid freight costs,” Sawla said.

Trade sources said large exporters have benefited more than the MSME ones in securing containers, as most of them get preference in bookings. Typically, large exporters do the bookings through established brokers, so they get better access to containers.

Ensuring reasonable shipping costs remains crucial to realising India’s lofty merchandise export target of $1 trillion by FY28. Exorbitant shipping costs hurt mainly small and medium exporters. The country’s exports rebounded strongly in FY22 and hit a record $422 billion, compared with the previous peak of $330 billion.
Source: Financial Express