Reduction in the number of shipping vessels operating due to the Covid-19 pandemic has led to fewer empty containers being picked up, leaving many containers in inland depots and stuck at ports for a long duration.
The government is in talks with exporters to help them deal with an international container shortage that has led to freight rates rising by over 300 per cent in the past year for key shipping routes. We examine why there is a major container shortage and what the government can do to address the issue.
Why is there an international container shortage?
Experts note that the reduction in the number of shipping vessels operating due to the Covid-19 pandemic has led to fewer empty containers being picked up, leaving many containers in inland depots and stuck at ports for a long duration. Long waiting times at key ports such as those in the US due to congestion also contribute to lengthening the turnaround time for containers. A sustained global economic recovery has added to the impetus to trade. The lack of availability of containers and the faster than expected recovery in international trade has pushed up freight rates significantly over the past year, with some key international routes even seeing an increase in freight rates of over 500% compared to September last year.
How is the container shortage impacting Indian exporters?
Indian exporters face major delays in their shipments and consequent liquidity issues as they have to wait longer to receive payment for exported goods. Exporters noted that shipments that used to take 45 days are now taking 75-90 days, leading to a 2-3 month delay in payments and liquidity crunch, particularly for small exporters.
Additionally, structural problems such as the high turnaround time for ships in India also add to the container shortage issue that exporters are currently facing.
How can the government help address this issue?
Exporters are calling on the government to regulate the export of empty containers. Experts noted that some countries were willing to pay a premium for empty containers and that this was further adding to the container shortage. Exporters have asked the government to curb the export of empty containers at all Indian ports in line with a move by the Kolkata port to restrict the number of empty containers permitted to be exported to 100 per vessel for a three month period. Exporters are also calling on the government to release about 20,000 containers that have been abandoned or detained by government agencies to augment supply.
The Federation of Indian Export Organizations has also called on the government to notify a freight support scheme for all exports until the end of the fiscal year, when freight rates are expected to normalize.
Exporters are also asking the government to push back on the move by shipping lines to offer priority bookings at higher rates, asking that shipping lines revert to taking bookings on a first-come, first-serve basis.
In the medium term, exporters have called on the government to boost the manufacturing of containers in India.
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