Trade, import, and export for MSMEs: The international shortage of shipping containers is having an impact on micro, small and medium exporters as well with freight rates jumping over 350-400 per cent in the past year for key locations including the US, Europe, Latin America, and Africa. According to experts, a combination of factors as a result of the pandemic has led to a shortage of available containers for exporters including MSMEs. Amid Covid, the volume of shipping vessels in operation was also likely reduced that had led to a lesser number of containers available while a larger set of containers had remained at inland depots and stuck at ports such as in the US and China.
This has impacted the turnaround time for containers that has eventually led to delay in shipments. The post-Covid recovery in global trade amid container shortage and delay in shipments have triggered an increase in freight rates. Consequently, MSMEs and other exporters have been dealing with liquidity challenges as payments for goods exported are delayed.
“It is emanating from the disruption caused by the pandemic and the fallout continues. Freight rates have gone up 350-400 per cent on an average basis for shipping to Europe, the US, Latin America, Africa in September from the year-ago period. There are around 340 odd vessels that are still waiting at the US port and it shows that there is congestion at various ports. So one part of the problem is that large ships are not operating in full capacity,” Ajay Sahai, Director General and CEO, Federation of Indian Export Organisations (FIEO) told Financial Express Online. Moreover, no orders were placed for new containers during the pandemic and in meantime, many containers were abandoned also as they had become obsolete and old, Sahai added.
AV Vijayakumar, Chairman at Federation of Freight Forwarders’ Associations in India (FFFAI) echoed that one of the major reasons for the shortage is the congestion at the US and Chinese ports while there is a shortage of shipping space as well because exports have been increased globally. “MSMEs have been affected very badly due to this with increased freight rates. For instance, from Chennai to the US, the present pricing is $12,000-13000 from earlier around $3,000. Similarly, for European ports, it is now $3500-4,000 from $750-800 earlier. Even if you have the container but you don’t have the space, then how would you transport. That’s also because there is a shortage of ships available. So, when shipments get delayed then automatically payment also gets delayed,” Vijayakumar told Financial Express Online.
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HKL Magu who runs export house Jyoti Apparels and ships knitted and readymade garments to businesses in the US, Europe, Canada, South America, and South Africa said he has been paying 5-6X more for container prices due to the shortage of containers. The price paid has gone up to $10,000 for exporting to the US. “If we were paying $2,000 earlier, now we are paying $10,000 for shipping to the US. We are ready with the goods but there is no space and that naturally affects the working capital while I see this to be a temporary impact. With the disbursement of export incentives, which are yet to begin, it might ease the working capital issue,” Magu told Financial Express Online.
The government had recently announced that it will release Rs 56,027 crore in the current financial year against pending export incentives due to over 45,000 exporters, around 98 per cent of which were small exporters in the MSME category. The incentives due to exporters belonged to different export promotion schemes such as MEIS, SEIS, RoSL, RoSCTL, other scrip-based schemes relating to earlier policies, and the remission support for RoDTEP and RoSCTL schemes for exports made in the 4th quarter of FY21.
Importantly, the delay in getting a container goes up to three-four weeks from earlier two-three days. With respect to lack of space on the ship, the containers are sailed in more than one voyage, perhaps spread over one or two months and since the containers are not shipped in one go, the business cycle of exporters is elongated, said Sahai.
The Central Bureau of Indirect Customs (CBIC), noted Sahai, has now asked customs to give clearance to around 20,000 containers stuck at various ports in India in order to be available to exporters as soon as possible. Moreover, there is also demand from exporters to regulate the export of empty containers. Sahai said that it could be on the lines of Kolkata port that has restricted the export of empty containers to 100. Also, a freight support scheme is among the suggestions made by FIEO to the government up to March next year to support exporters who have been incurring losses.
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