India rues lack of mega box line as freight rates soar to record levels

P Manoj Mumbai | Updated on August 23, 2021

Exporters face the brunt

India is scampering for a global scale national container line to lift the exporters out of crippling container shortages and space crunch on ships that have led to record high freight rates at a time when the exports are booming - for a change.

The privatisation of State-run Shipping Corporation of India Ltd (SCI), India’s only mainline container ship operator, running a solitary ship to Europe in a nine-ship service with Mediterranean Shipping Company S.A. (MSC), is not helping the cause. Geneva-based MSC is one of the world’s top three container carriers.

In July, the Cabinet led by Narendra Modi approved a subsidy scheme for local fleet owners while carrying government owned/controlled cargo. Container shipping was excluded from the list.

India’s merchandise exports hit an all-time high of $35.17 billion in July.

With more than 97 per cent of India's container cargo carried by foreign lines, exporters have posed a stark reality to the government.

Before Covid, a 40-feet container to the United States used to cost $2,000, now it ranges between $6,200 and $6,500. For Europe, the cost was $1,200-$1,500 which has soared to $5,500. The freight rates to West Africa and many destinations have gone up by 500-600 per cent in the last one and half years, hurting the profitability of exporters particularly those quoting on CIF, C&F and other delivery terms which include freight.

Indian shipping lines

The Federation of Indian Export Organisations (FIEO) said that while freight increase is a global phenomenon, India could be “suffering more because of a fairly large MSME presence in exports, who have very less negotiating power”.

“We require an Indian shipping line of global repute in the country,” FIEO said in June.

It said that SCI which has a market share of less than 5 per cent of the country’s total shipping business, is also being disinvested.

“We require a large shipping company in India as we remit about $65 billion every year as freight charges overseas and yet remain at the mercy of foreign shipping lines. As we move towards a trillion dollar of exports, the remittance for freight will touch $100 billion. If the Indian shipping lines get 25 per cent of this business, we have a captive market of over $25 billion waiting. The government may provide some fiscal support either through liberal lending or through tax benefits to facilitate the same,” FIEO said.

Zero incentives

But, lack of benefits is a hurdle to fleet owners looking to enter the container shipping segment.

“There is nothing for container shipping in India in terms of government policy support,” said an executive with a feeder shipping company that runs services on local routes along the Indian coast.

While the right of first refusal policy and the recently introduced shipping subsidy scheme would help bulk carriers and tankers neutralise the impact of IGST, duty on bunkers and other levies, container vessels have no benefit operating under the Indian flag, the executive said.

“Even the cabotage advantage earlier available to Indian container ships were eased, making it impossible to compete with foreign lines,” he said.

Shipping industry sources say that the extraordinary high freight charges prevailing now is also a fall-out of the “near monopolies” that have been built by big global container shipping firms over the past few years as rates stayed low.

“The slip of neglecting liner shipping in the past is showing and causing stress in our export-import (EXIM) trade as multinationals ride roughshod over the country’s export aspirations,” a former director who looked after liner services at SCI said.

Why India came to such a state is the story of missed opportunities a few decades ago.

Historical evidence points to the linkage between the rise of domestic liner companies and the nation’s growth.

Asian lines

The spectacular growth of Japan in the 1960s was aided by the rise of Japanese liners such as Mitsui O.S.K Lines, NYK Line and K Line.

The 1970s growth story of Asian tigers was led by the rise of liner shipping companies such as Evergreen and Yang Ming in Taiwan, Hyundai and Hanjin in South Korea. China’s leap in the 1990s was piggy ridden on COSCO, OOCL and other Chinese shipping companies.

“There is a lesson for India in these if we have aspirations to be the next superstar in world trade,” the former SCI official said.

At some 18 million twenty-foot equivalent units (TEUs), India's annual container throughput is hardly 5 per cent of the world’s container volumes. In comparison, China handles over 20 million TEUs a month.

The foreign container lines operate all over the world and India is just one of the many markets they operate in. “They cannot be faulted for assessing India just as they would any other market on the issue of ocean freight, which is dictated by market forces,” said an executive with one of the big container lines.

As long as there are more cargoes chasing less ships and containers, ocean freight will remain high. Once there are more ships and containers than cargoes to be carried, freight rates will slide, he said noting that India’s EXIM trade can draw comfort from the fact that its overseas competitors are also sailing in same boat.

Container shipping rates have gone through the roof also because charter hire rates for container ships have soared to more than $90,000 a day. Industry sources say that container vessels are unavailable for buying or for leasing.

Seamax Norwalk

SCI is struggling to find a replacement for ‘Seamax Norwalk’, the lone ship it has deployed on the Europe service it is running with MSC, according to a container shipping industry source. The lease period of ‘Seamax Norwalk’ is ending this month and the “high charter rates” is holding up the efforts of SCI to hire another ship.

If it is unsuccessful in finding a replacement for ‘Seamax Norwalk’, SCI, according to the industry source, is looking at the option of a slot sharing arrangement with MSC to fill the slots with 600 containers in the other eight ships working on that service.

If that happens, SCI will pay slot costs to MSC which is relatively cheaper compared to the steep charter hire rates.

Shipping experts say India burnt the bridges by strangulating whatever little was there of container shipping operating locally and that there is no one to turn to in the hour of need.

By the time, India conjures up something, the rates would have cooled, and the issue thrown to the backburner, letting go of another opportunity to catch the container shipping bus.

“Hope we learn our lessons at least this time,” said a shipping industry expert.

Published on August 23, 2021

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