Container shortage acting as dampener for India’s exports

Container shortage is proving to be a devastating last mile barrier to India’s robust export growth in recent months. It is important for authorities to manage the immediate issues hampering container availability and also institute a proper overarching regulatory framework for such issues in the long term.

• Of late, shipping lines are shutting out containers abruptly, giving reasons that the vessels are full.
• This paucity of containers is the result of a sudden improvement in exports and a slump in imports, especially from China, which has created a shortage of containers.
• The situation is proving detrimental for Indian exporters & importers since it is leading to a surge in shipping charges and cancellation of orders.
• Building a robust container production set up in the country, faster customs clearances and having a nodal regulatory agency for the sector can help mitigate such eventualities in future.

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According to Indian Container Market Annual Report, 2019, the total thoroughput of Indian container terminals in FY 2018-19 was 16.99 million teus, with a year-on-year growth of 10.5%, while total installed capacity stands at 28.65 million teus. It also notes that the Indian container market is recording incremental growth on account of several policy reforms such as mechanisation, deepening the draft and speedy evacuations. However, despite the impressive performance of the sector, the sector finds itself in the middle of a serious problem today – the paucity of containers in India. This article attempts to analyse the causes for this issue and offer some suggestions based on insights from the industry.

 

Source: Indian Container Market Report, 2019

Source: Indian Container Market Report, 2019

COVID-19, China & the paucity of containers in India

According to industry estimates, India’s container capacity is currently pegged at 27 million TEU. This, however, is not sufficient to meet India’s demands since of late, shipping lines are shutting out the containers abruptly giving reasons that the vessels are full. This paucity of containers is the result of a sudden improvement in exports and a slump in imports, especially from China, which have created a shortage of containers for exports.

India’s export volume grew by 24% between July and September, while its imports reduced by 28%. In October, while India’s exports registered a 5.4% fall, its imports recorded an even higher fall of 11.26%. Amidst the lockdowns, trading was low and the shipping lines also had to cut capacity. However, now that the exports have rebounded, India’s imports (particularly from China, with which it is currently facing severe tensions due to the border fallout) are down. The containers are piled up at some ports and limited in others. Container Shipping Lines Association (CSLA) executive director Sunil Vaswani explains:

“As a result, the shipping lines, which, until July 2020 used to ship out empty containers from India, had to start repositioning empty boxes into the country and move them inland to demand locations at a huge cost for the shipping lines,” .

This problem has been worsened by a few other factors:

(i) Congested railroad system in the US is further leading to delays;

(ii) Around 25% dip in the capacity of shipping companies owing to the low demand due to the pandemic;

(iii) Halt in the clearing of containers between March 23 to April 15;

(iv) Quarantining of vessels due to added checks on Chinese shipments and an overall negative outlook for China; and

(v) Customs (Administration of Rules of. Origin under Trade Agreements) Rules, 2020, and the consequent delay in delays in shipments.

This has started taking a toll on India’s exports and imports. According to Mr Ravi K Passi, Chairman-EPCH, the paucity of containers is proving to be a major roadblock for India’s handicraft exporters. Jaipur-based logistics start-up Gxpress, which needs 10-15 containers every week for sending shipments to the US, is now paying nearly US$ 3,600 for each container, up 40% in last one month. It is being reported that ship-liners have raised rates by nearly 60% in the last three months for moving a container to the US. Similarly, in case of African ports, the prices have more than doubled.

Rising against the low tide

One of the most obvious solutions to this pressing matter is domestic production of containers in India, as pointe1d out by Mr. Vivek  Agarwal, MD, Capital Ventures Pvt. Ltd.

While the facts that India’s exports exceed its imports, and that India has a large pool of labour work in India’s favour at the moment, India must focus on becoming a larger ‘steel recycler’.

Higher price of the metal in India as compared to China makes it an uncompetitive location for container production as it accounts for more than 50% of raw material cost. In this regard, Praveen Vashistha, founder of Gxpress, says:

To boost exports, India needs to have a robust logistics system. The government should support container manufacturers in the country & those firms that want to start their own industrial corridors. The process of granting permissions that are involved in the process of starting a company should be made easier.

In the immediate context, expediting customs clearances and efficiently managing the lopsided distribution of containers at ports would also help in resolving the issue. Industry is also of the opinion that there should be a nodal regulatory agency for the shipping sector and the proposed National Logistics Efficiency Advancement Predictability and Safety (NLEAPS) Act should be formulated and implemented soon to protect the export-import sector from such abrupt changes.