If there is one sure shot indicator of the economy bouncing back, undoubtedly, it has to be the shipping industry – the cargo. Like the trucks, which are the true drivers of the economy, it is the movement of these containers which heralds good or bad times ahead.
Thus when we read the news that the price of container shipping cost has skyrocketed, naturally, the first reaction is a sense of optimism. And it is only when you look deeper inside, you realise that there is more to this – yes, there is a surge in economic activity across the globe but the prices are driven northwards more on account of disruptions in supply chains as countries across the world rush to restock inventories which were depleted during the pandemic over the last 15 months. The disruptions were further aggravated due to events including the Suez Canal blockage, bottlenecks in Southern California and China’s Yantian port.
On the Indian shores, apart from these, there are other reasons too – closure of Pipavav port, Colombo congestion, huge backlog of containers at key export hubs with very limited space for loading. The news is that many containers are completely skipping ports like Mundra, Hazira, Vizag, and Kolkata.
The scramble to get goods onboard is so much that everything is overbooked, with booking for “tomorrow” being the most desperately sought commodity. If you want to book a container for September, you need to scramble right now. Shipping has turned into a bidding war. In India, the waiting time to get a container has now increased to 10-20 days, while instant availability attracts over 100% premiums.
As per Wall Street Journal, the average price world-wide to ship a 40-foot container has more than quadrupled from a year ago, to $8,399 as of July 1, according to a global pricing index by London-based Drewry Shipping Consultants Ltd. The measure has surged 53.5% since the first week of May.
In India, the picture is no different. According to the Federation of Indian Export Organisations (FIEO), there has been an exorbitant rise in rates since the Covid-crisis began. A 40ft container to the US before Covid cost $2,000, now it is between $6,200 and $6,500; rates to Europe have increased from $1,200 to $5,000 and West Africa market has seen a 600% increase.
Though there is a mad rush to book containers, shipping companies have a dilemma – if you are transporting low-value goods like household items, toys, promotional articles or garments, you can either pass on the cost to the consumer or for some months, completely exit overseas market. This means availability and price, both will impact consumers. From the Indian ports itself, there are no bookings available on some routes until 10-15 July.
Those in the industry say that new capacity in the sector will on stream only slowly and till then, freight rates are expected to reach the stratosphere, hitting new highs in H2CY22 as rising global demand will be met with limited increases in shipping capacity. The high rates are expected to remain there well into 2022.
Well, with prices hitting this high and containers going all fully booked, though it does not bode well for exporters, it most certainly is good news for shipping companies. Keep a watch on GE Shipping, Shreyas Shipping, Essar Shipping, Shipping Corporation of India and Seacoast Shipping Services. Let’s see if they are able to translate these never-before-seen freight rates into never-before-seen profits!