With decreased operational capacity and labour shortages due to the pandemic, the port operations have been significantly hit leading to container pile-ups, resulting in port congestion. Sanjay Bhatia, Co-Founder and CEO, Freightwalla tells more about the drastic impact of port congestion and its impact on the supply chain.
What has been the impact on supply chain with congestion at major ports globally?
Pandemic stressed supply chains, decreased operational capacity, led to labour shortage, and hurt port operations significantly. Reduced port operations and container pile-ups at the ports have further led to port congestion. According to estimates, the world’s shipping capacity has been reduced by as much as 10 per cent owing to port congestions and only 40 per cent of the cargo are making an on-time arrival vis-à-vis 70 per cent two years ago.
Following were the key highlights showcasing serious disruptions across supply chains —
- Port congestions are having a drastic impact at ground level from production units to retail stores. Disturbance in raw material supplies to factories and unsettled manufacturing deadlines due to uncertain inputs led to wide inventory management issues across industries. Sudden surge in demand for some products in pandemic has further aggravated the supply chain challenges.
- Owing to the shortage of containers and cargo availability, freight rates are skyrocketing globally. The rates have tripled and even quadrupled in some cases compared to the pre-COVID levels.
- Shippers are unable to fulfill the committed number of volumes as per the contract due to container shortages.
- In the case of transhipment, additional time to offload a container and then place it onto another vessel exposes one to further delay, especially in the event of port congestion. Therefore, businesses are being asked to consciously plan for direct shipments as much as possible so as to avoid transhipment congestions.
- Despite these supply chain challenges, it is highly unlikely that developed countries shall shift their manufacturing in neighbourhood in near future, due to high cost of production.
Has there been an increase in freight rates due to container shortage? What has its impact been?
The container shortages, congestion across major ports, and increased consumer demand for material goods have driven freight rates to record highs. Spot rates for freights from Asia to the United States and Europe hit a new high in July.
Following has been the impact of high freight rates on global supply chains —
- Serious port congestion and significant waiting time have necessitated Beneficial Cargo Owners (BCOs) to pay a premium to secure space on containers and get the cargo shipped. This has in turn adversely impacted their budgets. The Federation of Indian Export Organization (FIEO) confirmed that freight rates to the U.S., which were about $2000 to $2200, are now in the range of $6000. Similarly, cargo to Europe costs around $5000 as opposed to $1200 previously.
The budgeting of importers and exporters has got totally muddled up in this trend.
- Exorbitantly high prices have rendered many of the perishable and low-value commodities unfeasible for exports.
- Cargo profiles that will be serviced with lightweight shipments are being preferred by shipping lines. Heavyweight cargo also tends to make the carrier consume more fuel as opposed to lightweight cargo.
- Contracts between buyers and shippers are being revisited to offer more flexibility in the wake of high freight rates.
- Advance booking of cargo with adequate shipment planning has become imperative to ensure seamless trade.
Is India ready to become a manufacturing hub for containers? What are the challenges?
The container shortage crisis has crippled the Indian export industry since the beginning of the first wave. While multiple factors like lockdown, lack of labour, international trade restrictions contributed to this shortage, the main underlying factor was global dependence for containers from countries like China and lack of in-house container manufacturing facilities. Additionally, the prices of containers have also gone up by 5-7 times as clusters of containers remain stuck at various ports across the globe.
However, to resolve this long-standing problem, India’s top steel and wagon makers, and the government’s support have come forward to initiate indigenous production of cargo containers. The country’s ‘Make in India’ programme
and ‘Atmanirbhar Bharat’ has given a boost to develop containers indigenously.
Considering it a promising and welcoming move, there are still several challenges in the path such as rising steel prices and the lack of container manufacturing expertise. Although, once this plan is fully functional, it would not only demonstrate a robust public-private partnership but also significantly reduce India’s dependence on containers from China. While commenting on India becoming a global container manufacturing hub would not be appropriate at this stage, we have the boat parked in the right direction with the current plan.
What are the expectations from the government in resolving the problem of container shortage?
India requires around 3 lakh containers every year. The country has set up various plans to become self-reliant in manufacturing containers indigenously. Major steel manufacturers and wagon makers like JSPL, Arcelor Mittal, Tata Steel, etc., have come forward to manufacture containers. Additionally, the Centre has already initiated a plan to manufacture containers at Bhavnagar, for which it expects a significant investment of 1,000 crore from the private sector.
As spoken earlier, the government’s move of in-house container manufacturing is commendable; however, robust and accelerated government intervention has become necessary to expedite the process and incentivise the manufacturers which will show us noticeable results in the near future.
Government initiatives and awareness programmes for the adoption of digitisation can also aid in the intelligent management of container movements, thereby avoiding congestion at the ports.