Commodities

Shortage of sea containers hits TN tea exports

TE Raja Simhan Chennai | Updated on October 01, 2021

Spike in transportation costs bring losses to the exporters

The global shortage of sea containers has dealt a body blow to tea exports from Tamil Nadu - one of the largest tea exporting States in India. The shortage has spiked the freight rates through the roof, so much so that transportation cost is now equivalent to the value of the cargo transported in the container. Exporters are still shipping their stock, despite the loss, just to retain their customers with whom they have been dealing with for decades.

The shortage started last year due to Covid-19 pandemic but the Suez Canal blockade and closure of large Chinese ports due to virus spread early this year aggravated the situation mainly in the US and Chinese ports. As on Thursday, around 65 large container vessels were waiting in queue outside Los Angeles/Long Beach and around 25 outside Savannah (in the East Coast). In China, over 240 container vessels are waiting outside various ports. This is disrupting the logistics globally.

Also read: 7% rise in India’s tea export earnings in H1

Every year, around 4,000 containers (40-feet) of tea are exported from Tamil Nadu to various destinations, including the EU; US; Russia and China. In December 2020, freight charges to Rotterdam from Kochi was $1,950, but it is now $7,800, said Rahul Shukla, Director, SSK Exports Ltd, Coimbatore, a leading tea exporter. “Early this year, we signed an agreement to send tea at a freight of $3,000 to Rotterdam but today the rate is $8,000. We need to bear the additional $5,000 (₹3.5 lakhs) leading to huge loss instead of making a small profit,” he said.

Freight charges

Freight to US port Savannah in December 2020 was $3,000 for a 40-feet container but today it is about $15,000, and that there is no guarantee of box availability, said Dipak Shah, Director of Crystal Tea, and Chairman of the South India Tea Exporters’ Association. “We are shipping at a huge loss as we don't’ want to lose our valuable customers. Once we lose them, it is very difficult to get them back,” he said. “We usually send cargo via Kochi or Thoothukudi ports. However, due to non-availability of boxes, we are forced to go to Nhava Sheva or Mundra for one or two boxes. For three months, we have been waiting for boxes,” said Shah.

A senior tea planter, N Lakshmanan, Director of the Coonoor-based Golden Hills Estates Ltd, said that the escalation in the freight charges is not the same between the CIF contracts and FOB contracts. ”The nexus between a large importer and the shipping companies are different and they are trade dictums which are seldom made public,” he said. Producers who had contracted on CIF terms will be the worst affected and naturally they dump the entire quantity in the auction system. The exportable commodity very rarely gets appreciated in the internal market, he added.

Sriram Narayanaswamy, Senior Tea Auctioneer in Coimbatore, said that due to freight escalation, it is very difficult for someone to give a price for the tea in the auction. Southern India produces around 230 million kg of tea annually, of which 120 million kg is from Tamil Nadu produced mainly in the Nilgiris, Gudalur and Valparai. Nearly 50 per cent of it is exported, he said.

While there is no visibility as to how long this lean phase will continue, the tea industry is grappling to find a solution, he added.

Published on October 01, 2021

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