Why India's exports to US and Europe are becoming costlier
What's the story
Indian exporters are facing a major spike in freight costs, with shipping charges on almost all major routes rising sharply. The cost of shipping containers to the US and Europe has increased by three to four times in the last couple of months. On average, exporters are now shelling out over $9,000 per container compared to around $3,000 a couple of months ago.
Cost drivers
Timely vessel availability issue
The sudden spike in freight rates comes at a critical time for Indian exporters, with the festive and agricultural seasons approaching in major Western markets.
Industry insiders say several factors are behind this disruption, but the main problem is timely vessel availability.
It's not an outright shortage of vessels or containers that's causing this issue, but rather delays due to port congestion affecting vessel schedules.
Additional challenges
Blank sailings and route changes
Blank sailings on several routes are further complicating vessel schedules.
Adding to the woes, two out of five weekly shipping services to the US have been suspended, including those to the East Coast.
The continued use of the longer Cape of Good Hope route is also affecting vessel schedules.
Indian exporters switched to this route instead of the Suez Canal last year due to geopolitical tensions and attacks in the Red Sea.
Market impact
Increased freight charges
The festive season demand in the US and Europe has further complicated matters.
Exporters usually see a rise in freight charges during this time, but this year the increase is extremely high with shipping companies charging three to four times the usual price.
This, along with war risk charges and additional transportation costs, has significantly raised overall costs for Indian exporters who are willing to bear these expenses to meet peak festive season demand.
Expert insights
Expert insights on situation
Sunil Vaswani, Executive Director of Container Shipping Lines Association, told CNBC-TV18 that the current situation isn't due to an actual shortage of vessels or containers but a disruption in vessel schedules.
He said key ports like Jebel Ali aren't functioning at full capacity, causing delays.
Congestion at major transshipment and shipping hubs such as Colombo, Singapore, and Malaysia is also worsening the problem.
Seasonal significance
Peak export season for Indian exporters
The July-August period marks the start of peak export season for Indian exporters catering to festive demand in the US and Europe.
This includes Diwali demand from the Indian diaspora as well as major Western festivals like Halloween, Thanksgiving, Christmas, and New Year.
The period is also crucial for agricultural exports to these markets.