Growing demand from India’s consumer and industrial sectors could help boost imports and rebalance the country’s container markets over the next three months, according to Ajay Sahai, the Director General and CEO of the Federation of Indian Export Organization.
Recently, Sahai said Indian exporters were waiting for year-end demand signals before making long-term commitments.
Edited excerpts of the interview follow:
How are the country’s imports and exports faring? Is rebalancing of the market in sight?
Sahai: Imports are down to a large extent due to local lockdown and other uncertainties but in the next three months we see imports bouncing back because the demand from the consumers and industry is expected to come back.
On the exports front, we have done reasonably well, particularly in sectors such as chemicals, plastics, petrochemicals, food products and pharmaceuticals. In the lifestyle products like apparel, gems and jewelry, footwear, handicraft and carpets the demand is still low and we feel that pain for these sector may be a bit longer.
Even though we are getting a lot of inquiries, converting that into an order, that to a long-term order is a challenge. Whatever orders in this segment are coming to the country are for a short duration of time as buyers are still wary of the kind of demand the festive season will bring.
How has the recent surge in container freight rates impacted India’s exports?
Sahai: The cost of freight is definitely a pain point for exporters in India, especially if you have contracted under the cost, insurance and freight (CIF) or on cost and freight (CNF) basis then it is an issue.
This is probably because of two reasons; because imports are down, many of the shipping liners had to redistribute empty containers from other regions to India to serve for exports. Secondly, many of the large shipping liners are deploying smaller vessels to India as demand is low.
With small vessels, overall costs of shipping liners go up leading to higher freight rates. Once the import is close to normal, these issues will be addressed. We have been in touch with Container Shipping Line Association as well and we have been given to understand that the situation should ease to a large extent.
Will increased spot freight rates impact negotiations for long-term contract rates which are expected to be signed next year?
Sahai: Many Indian shippers who work on a freight on board basis are not worried about the freight rates going up. However, exporters who have got into contracts on CNF and CIF basis and, thereafter, if freight rates go up, it is a loss to the exporter, they are definitely concerned.
Secondly, even if the freight is to be paid by a foreign supplier, what matters is the landed price. If the landed price of the product goes up this will definitely affect the exporters.
At this point of time, no one is keen on getting on a yearly contract as they are still not sure on the business outlook and demand. Nobody is taking a long position.
Many exporters have indicated that they will decide on a position based on what kind of demand will come from the advanced economies like Europe and US during Christmas and New Year. If the trend is encouraging then chances of a rebound in exports is expected. If not, it will be a painful process for all of us.
Are you in touch with shipping liners over their preference over longer routes as compared to shorter routes? Has this caused any friction between shippers and shipping liners?
Sahai: I do not think there is any friction over such issue. Preference for longer route maybe because of the volumes. It is a call which market forces decide.
The dwell time for exports has significantly deteriorated at Indian ports. What are the key factors behind it?
Sahai: That could be because of lack of manpower. We have been studying it over a period of time and have observed that dwell time has definitely been hit due to COVID-19 lockdowns and lack of manpower which has caused these aberrations.
But I think when we look at the overall improvement in the port efficiency we are definitely looking to further compress the dwell time at ports. The dwell time is being monitored by the government on a day to day basis it is expected to come down in the coming months.
US and Chinese authorities have intervened as freight rates and void sailings shot up? Do you think such an intervention will be effective?
Sahai: I personally feel that it should be left to the market forces unless you feel that there is a monopolistic trend in increasing the freight.
If there is no monopolistic trend or cartelization then market forces should be left to decide. This is an extraordinary situation and will take some time to normalize, when shipping liners were bleeding nobody came forward at that point of time, we did not even discuss it.
Source: Hellenic Shipping