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Container Crunch

As India's imports fall, exporters are facing a shortage of containers
twitter-logoJoe C Mathew | Print Edition: February 21, 2021
Container Crunch
Illustration by Raj Verma

Over the past four-five months, Patton International, a Kolkata-based electrical conduit fittings manufacturer, has been sending, on average, two container loads of goods every day by road to Jawaharlal Nehru Port in Mumbai. The decision to skip Kolkata port next door and get consignments transported 2,000 kilometres by road to Mumbai shows desperation arising out of acute shortage of containers at Kolkata port and prevailing uncertainty over the transit time to the final destination, the US.

"Our containers used to get loaded at Kolkata and go to Colombo for transhipment to Europe and the US. Post the pandemic, our goods began to take 90-100 days to reach the US through this route. Shortage of containers, and congestion at Colombo port, are leading to delays in transhipment. We had no choice but to ship through Mumbai where container availability is better; the shipment will reach the US within 45-50 days, including the time taken for road transportation," says Sumit Goyal, President, Operations, Patton. The company is sending almost 50 per cent of its supplies - 70-80 containers a month - through Mumbai now. If containers are not available in Kolkata, goods are transferred from trucks to empty containers available in Mumbai. "Road transport is expensive. You are taking a hit of 6-7 per cent. It is a huge cost. But there is no choice. There is so much delay and customers are not willing to wait," he says.

Patton is no exception. Ever since Covid-19 disrupted global supply chains and trade, exporters who send goods via ports, especially on the east coast, have been facing severe container shortage and congestion at transhipment ports such as Colombo, Singapore, Hong Kong and Klang. East coast ports handle around 30 per cent of India's container throughput. As more and more companies work to fulfil orders for the current financial year in the next two months, the shortage of containers is bound to rise. Industry experts say rebound of Indias external trade would have been quicker but for the shortage of containers.

The mismatch between container availability and volume of goods reaching various Indian ports is glaring. Indian Ports Association statistics show an 11 per cent year-on-year decline in container traffic across major Indian ports in April-December 2020; in tonnage terms, though, the decline is 8.8 per cent. In absolute terms, container traffic in April-December 2020 was 6.7 million TEUs (Twenty Foot Equivalent Units) as against 7.5 million TEUs during the April-December 2019 period. A TEU is a shipping container about 20 feet in length, eight feet in width and eight feet in height. The containers Patton International talked about are double this length, 40 feet, the most commonly used size. In FY20, container traffic at major ports was 9.99 million TEUs (5.2 million TEUs in imports and 4.8 million TEUs in exports).

Why It Pinches

India has never faced a shortage of containers before as its imports were higher than exports during most periods. This means more containers were coming in than going out. In FY18, while 4.7 million TEUs came in, 4.4 million went out. This continued in FY19 when 5.1 million containers came in and 4.7 million went out. In 2020, the pandemic disrupted this pattern. "From mid-June 2020 onwards, US and European countries, after months of suspension, started importing big time from countries such as India and China. At the same time, imports into India dropped significantly. In fact, during July-October 2020, exports rose 24 per cent in volume terms while imports dropped 28 per cent compared to same period previous year. This created an imbalance which resulted in shortage of containers for exports," says Sunil Vaswani, Executive Director, Container Shipping Lines Association (India).

However, there are global reasons also behind shortage of containers. Ajay Sahai, Director General, Federation of Indian Export Organisations (FIEO), says the root cause of the crisis is reduction in number of operational large cargo ships. "During the pandemic (when goods movement got stuck due to lockdowns globally), shipping lines released all large ships which they had contracted. So, even if you are sending goods through small ships from here to transhipment hubs such as Colombo, Singapore or Hong Kong, there are no (sufficient number of) large ships calling on those ports to take those containers. This has resulted in acute pile-up of containers at these transhipment ports," says Sahai.

To make matters worse, more than 50,000 containers which have been seized by various authorities such as Customs, DRI (Directorate of Revenue Intelligence) and other enforcement agencies are lying idle at various ports. Exporters have been requesting these agencies to offload cargo in these containers in warehouses and release them into the cycle.

The Damage

There aren't many instances of companies losing export orders because of delayed execution. Overseas buyers usually understand disruptions in global container flow. But the shortage has made exports (and imports) more expensive and affected margins.

Mahesh Keyal, Director (exports) of Kolkata-based ferro-alloys firm Mortex, says due to reduced capacity in cargo ships, demand is up and, as a result, freight charges have risen three-five times. "Earlier, we were paying $800 to ship one container load from Kolkata to Rotterdam. This has now risen to $2,000-2,500 per container. The roll-over (movement from port of boarding to destination) time has increased by at least 25 to 30 days. There have been many instances in Eastern India where people are loading 40 feet containers and sending to JNPT for shipment because there is no vessel space available in Kolkata or the transit time is very long. Imagine, it costs Rs 80,000 extra per container," he says.

The Solution

The shipping ministry and the logistics department of the commerce ministry have been trying to defuse the crisis from the beginning. Heeding to their requests, shipping lines have been bringing empty containers into India. Ajay Sahai says around 1,00,000 empty containers are being brought from other countries to Western Indian ports to ease the situation. The railway ministry has also started running trains to carry empty containers from ports to container freight stations or inland container depots. Port authorities have also done their bit. Several of them, including Kolkata Port, have put restrictions on number of empty containers that can be taken out by the ships. Container Shipping Lines Association's Vaswani claims that some shipping lines have bypassed congested transhipment ports and made direct calls to Indian ports like Mundra, Vallarpadam and Ennore. The situation is expected to ease on its own as global trade flow normalises by the end of the current fiscal, he adds.

It could be true, but India needs to look for long-term solutions. First, the decline in India's imports may not be just due to the pandemic. If the Atmanirbhar (self-reliance) plans of the Narendra Modi government succeed, India may see substantial decline in imports over the next three-four years. This could take away the country's 'container surplus' advantage.

FIEO's Sahai says India should start manufacturing containers - 95 per cent are manufactured in China. "Even if you buy those containers and bring them to the country, the cost goes up 45-50 per cent. India has many shipyards that don't have much work. Let these shipyards manufacture containers. If you manufacture in the country, the cost comes down, and since you are short of containers, you will have a readymade market too," he says.

The idea is catching on with the government too. Bhavnagar in Gujarat is being looked at as a potential container manufacturing hub. It will solve Indias container problems for all times to come. It will make India a viable alternative to China for container procurement too.

@joecmathew

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