As a result of a significant scarcity of vacant containers, Indian exporters are suffering the consequences of container congestion. They were already dealing with soaring freight prices, and now the lack of container supply has added to their woes.
Small exporters are revealing that freight prices exceed the cost of their products themselves. Metal boxes, which enable global trade, are in limited supply, causing a cascading impact on supply chains throughout the world. It all started with the COVID-19 pandemic.
Covid-19 and containers
It’s no hidden fact that Covid-19 has affected the entire world. As the supply of sea-borne commodities decreased, shipping firms reduced the number of containers at sea. Not only the exports and imports were affected due to this, but also the collection of empty containers.
The container shortage has not just affected India. The worldwide supply system was interrupted during the pandemic lockdown, and the result is now apparent in the form of a global container crisis. Due to COVID-19 limitations, containers heading for Asia could not be returned to the Americas.
China was the first country to recognize the coronavirus and get a grip on it, and its manufacturing machine shifted into high gear. If the containers had not been on the correct side of the Pacific, exports and imports of China would have rebounded as well.
Another considerable impact of the pandemic was the switch in people spending more on online purchases of products instead of spending on services like restaurants or fitness. Because of the enormous buying boom in North America and Europe, demand for items manufactured in Asia’s industrial centers (including India) skyrocketed, and there weren’t enough containers to accommodate all of the potential purchases.
Cancellation of orders in India
Container congestion is dramatically taking Indian exports downhill. HK Magu, Managing Director of an apparel export company stated that they were trying to cope up with increasing freight costs, but owing to a lack of vacant containers, international customers are now cancelling orders.
He said that numerous vessels have bypassed India owing to a lack of containers to export out, which has resulted in international customers cancelling orders or demanding air shipment. But, unfortunately, shipping through air has also not been a viable option as the air freight rates have also climbed 4 to 6 times after the pandemic.
He also claimed that season-based exporters like him are paying a premium of up to 100% for urgently acquiring empty containers. The typical waiting time for receiving empty containers in India is one day, but it has already reached a high of 15 days following the Covid-19.
A seafood exporter of India, Manish Shinde, also talked about his story of combat with the shortage of containers. He claims that the container problem has caused orders to be cancelled, leaving him with a large inventory of perishable items. And this is pretty much the story of every other exporter supplying perishable goods.
Congestion in every corner of the globe
Exclusive data from maritime intelligence firm eeSea reveals the world’s most crowded box spots, rating all ports based on the total number of mainline boats in port or waiting. The ratio of in port to waiting represents an approximation of the congestion.
Hong Kong, for example, has a 67% waiting ratio. Oakland, Savannah, Seattle, and Vancouver are all above 65%, while Yantian, where the pandemic hindered output throughout June, has done well to clear much of its backlog in the last few weeks.
The data is based purely on AIS and covers mainliners, not feeders. While feeders do contribute to congestion, they are typically seen as a result rather than a cause.
Extreme consumer demand, mostly in the United States, has coincided with Covid-19 shipping and port disruptions throughout the year, resulting in unprecedented global congestion, record freight prices, and all-time lows for liner schedule reliability.
FIEO
The Federation of Indian Exporters Organization (FIEO) has approved the launch of a digital portal to assist export industry operators. FIEO plans to develop an e-module that will give shippers an online platform to post their container needs. The logistics companies and shipping firms will then bid their best rates, ensuring market openness and better pricing.
Increase in Capital expenditure
As stated earlier, people’s buying behaviour has changed and they have been ordering goods online. However, consumers are not the only ones who have started investing in goods or services. According to The Economist, capital expenditure (CapEx) by American corporations will be increasing by 15% annually in 2021.
Corporations in other areas of the globe are also increasing their investment, and Morgan Stanley’s analysts expect a “red-hot Capex cycle.” The unprecedented intensity of the corona-induced recession in the global economy had caused firms all around the world to postpone capital-goods investment in 2020. This investment backlog has been reduced by the economic recovery in 2021.
According to Morgan Stanley, global capital investment would soar to 121% of pre-recession levels by the end of 2022. The worldwide need for containers to ship capital goods is also being driven by the CapEx boom.
Regardless of this situation of the pandemic and container congestion, companies like Maersk have been ordering new ships and making huge profits. Maersk, the world’s largest container line, now expects full-year earnings before interest, taxes, depreciation, and amortization (EBITDA) of between $18bn to $19.5bn, up from an April estimate of $13bn to $15bn. Maersk’s initial estimate for 2021 at the outset had been for an EBITDA of $8.5bn to $10bn.
The firm reported a record Q2 EBITDA of $5.1 billion, with volumes transported up 15% and average freight rates up 59% compared to the same period last year. According to the company, this excellent quarterly performance is mostly due to the continuance of the extraordinary market scenario, which has resulted in supply chain bottlenecks and equipment shortages.
Earnings for the third quarter are projected to outperform by the second quarter. Maersk has also announced that it would buy more containers to overcome the shortage.
Final thoughts
How long will this situation last? When will the shipment industry come back to normal? Many industry analysts anticipate a post-corona increase in demand owing to consumer spending and the CapEx boom to last for at least the rest of the year. So, only the coming time will reveal what’s in store for the shipping sector as well as the consumers!
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