Some Relief For Indian Exporters, Importers As Global Freight Costs Fall
Average freight rates for a 20-foot container in July were 20-30% lower from their peaks across trade routes to and from India.
Ocean freight rates, after rising to a record last year globally, are now falling, providing some relief to importers and exporters. Still, the pace of decline remains subdued and a return to pre-pandemic costs looks unlikely any time soon.
Mirroring the trend, freight rates for Indian exporters and importers have fallen after a steep rise, amid easing of global supply chain disruptions.
The average freight rates for a 20-foot container in July were 20-30% lower from their peaks across trade routes to and from India, according to data compiled by CareEdge.
Freight costs in the U.S. have come down by about 20-30% from their peak in September-October last year, while for Europe, there has been a correction of about 30% from its peak in February-March this year, said Arunava Paul, associate director at Care Ratings.
Rates for the U.A.E., which are cheaper due to proximity and as it witnessed less volatility, have corrected by 20-25% from the peak in February-March, he said.
Even though rates were expected to decline this year, due to the shutdown in China along with Russia's invasion of Ukraine, they remain three-four times higher than pre-pandemic, Paul said.
According to him, while rates declined since April, they saw a modest uptick in July and remain volatile.
One of the challenges is that the rates continue to change every day, said Mahesh Desai, chairperson at the Engineering Export Promotion Council of India.
From the time an exporter books a container to the time they make payments, they have to revisit and revaluate the cost, he said. Still, there has been a correction in rates along with an improvement in availability of containers, Desai said.
The decline in freight rates mirrors the global correction in container and shipping rates.
The Baltic Dry Index, a globally tracked shipping cost benchmark, fell by 31.7% to 1,560 year-to-date. From it's peak of 5,650 in October last year, the index has declined by 72.4%.
The Shanghai Containerized Freight Index, which represents rates to and from Chinese ports, also fell by 25.8% to 3,739.7 from 5,109.6 at the start of the year, when it was at its peak.
Freight Rates: A Slow Fall
Stretched shipping costs could be the new normal for a longer period, contingent on easing of geopolitical pressures and the appearance of no further pandemic waves, according to a research paper by the Reserve Bank of India, which was published in the June 2022 RBI bulletin.
There will not be a massive decrease in rates because the underlying disruptions in the supply chain are still there, stated a research note by online container marketplace Container XChange.
Inflation has started to put stress on the U.S. economy and the European Union. With inflation and pandemic-induced lockdowns, disruptions will continue to change the equation between supply, demand and prices, the note explained.
In the long term, these will phase out and create a new normal balance of supply and demand, it said.
Acknowledging macro uncertainties, a research note by JP Morgan dated Aug. 3, 2022, stated that the process is expected to be "gradual and occur over a multi-year period, while normalised freight rates could be markedly higher than the pre-pandemic normal".
This is contrary to the prevailing but more negative view that spot freight rates will collapse amid inflationary and/or recessionary concerns, the note said.
The RBI study estimated that a 10% rise in import freight costs is expected to raise the year-on-year CPI inflation by 0.89 percentage points over the next six quarters before dying down. In particular, a 10% rise in import freight price leads to a rise in annual consumer price inflation by 0.21 percentage points, it said.