Challenges in maritime trade

There is an urgent need for the stakeholders to develop a collaboration in the global maritime trade so that adverse developments like container shortage and freight rate hike can be avoided in future. Deepal Shah, Chief Financial Officer, Allcargo Logistics shares his opinion.

The blockage of the Suez Canal by Ever Given megaship in March this year unexpected disruptions in the global seaborne trade at a time when the global economy is recovering from the pandemic-induced economic crisis. The incident spurred fresh hike in the container freight rates as shipping lines were forced to take a longer route around Africa to bypass the Suez Canal logjam. Although the maritime traffic congestion in the Suez Canal – the direct shipping route between Europe and Asia – has been cleared subsequently, it has aggravated the container shortage apart from jacking up freight rates further.

The Suez Canal episode has brought to the fore the freight rate hike and container shortage issues which the global maritime trade has been battling with throughout the pandemic phase as a consequence of trade imbalance and altered trade designs. There are multiple reasons which have led to the demand and supply mismatch in container movement. Due to blank sailings, repositioning of the empty containers couldn’t be properly managed by the ports. The process of unloading of the containers and returning of the empty ones to the port was also delayed due to manpower shortage, capacity constraints in transportations etc. Decrease in FCL shipping also contributed to the capacity crunch.

Suez Canal blockage not only amplified the challenges the maritime trade is facing but also reiterated the dependence of the global trade in shipping and the decisive impact of the shipping rates on the trade costs. As per the data available with United Nations Conference on Trade and Development (UNCTAD), this year the freight rates from China to South America had increased by a whopping 443% because of the unavailability of containers. UNCTAD has also predicted that the container freight rates are expected to remain on the higher side. The traders, especially in the developing countries, are not in a position to absorb the increased rate and will eventually pass the additional cost on to their clients.

The policymakers of our country should take note of the inflationary impact of the freight rate hike on the logistics trade and closely monitor the related developments and formulate policy measures to control the freight rates and facilitate better capacity utilisation. The prevailing challenges in the maritime trade underline the importance of accelerating technology integration in the operational framework to make the supply chain more resilient and efficient in handling unforeseeable challenges. More importantly, there is an urgent need to develop a collaboration framework among all the stakeholders in the global maritime trade so that adverse developments like container shortage and freight rate hike can be avoided in future. The container shortage and its adverse impact on maritime transport should act as a wakeup call for the concerned stakeholders to beef up tracing and port call mechanisms. In a developing country like ours which is battling the second pandemic wave, higher freight rates could slow down the economic recovery process significantly, as businesses don’t have the required bandwidth to absorb the inflated logistics overheads.