‘Downward trend’. Falling freight rates: Shippers lose out to subdued export demand

The nearly 40 per cent drop in container prices has not brought any cheer to the shipping and exporters fraternity. A majority of them say the fall in rates comes at a time of subdued demand across markets.

Industry sources pointed out that there was a decline in average container prices in the country at $2,088 from $3,288 in March.

The rates were skyrocketing during the pandemic, coupled with a shortage of containers, thereby hitting the bottom lines of several companies. The situation improved last year with the availability of adequate containers.

“It (business) is unlikely to benefit from dropping freight rates in the wake of declining exports due to a slowdown in overseas markets. This has disrupted movement of export cargo to many destinations in the US and Europe. The shipping rates had touched $25,000 in Covid times, enabling many shipping lines to book profits. A similar situation is expected once demand improves,” Alex K Ninan, president of Seafood Exporters Association of India (Kerala region), told BusinessLine.

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“It is true that container freight rates have come down dramatically with 40 ft freight rate to Felixstowe quoted for $6,000 in 2022 to $700 in May 2023. Likewise, rates to Norfolk and New York have come down from $12,000 in 2022 to $2,500 in May 2023. Unfortunately coir industry has not been able to make use of this windfall gain,” said Mahadevan Pavithran, a leading coir exporter in Alappuzha.

A 50 per cent slump in order position has made it impossible for coir exporters to make use of the favourable freight rates, especially with a strong dollar and stable raw material prices, including low coir yarn price, he said.

Now there is an over-bought position in the market and the added impact of high inflation and a war-torn Europe, which have resulted in one of the worst years for coir exports, he said.

Main reasons

Binu KS, President of Kerala Steamer Agents Association, said the recent dip in freight levels can be attributed to many factors.

The disrupted supply chains and vessel schedules were a main reason for the imbalance in the box supply situation during the pandemic, amid a drastic dip in demand from the US and European markets. The Ukraine war also adversely hit demand across Asia to Europe.

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“Now we are experiencing a situation where we have enough space in vessels and excess supply of containers, which compelled shipping lines to start a price war, resulting in drop of freights. This may continue for another 3-6 months,” he added.

According to Prakash Iyer, chairman, Cochin Port Users Forum, the recessionary trends in the US and European markets have forced shipping lines offer lower rates to help fill cargo.

However, the situation is not conducive to get more export orders. This downward trend will continue for another few months, and cargo volume is expected to bounce back by the end of the year.

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