Feature: Indian rice exporters face headwind amid container shortage crisis

Indian rice exporters are facing random and sudden freight cancellations amid an acute container shortage in the region, market sources told S&P Global Commodity Insights July 2, likely tightening the shipped volumes in coming weeks.

Multiple factors have contributed to the abrupt scarcity of containers, such as freight demand upsurge from China to the US and Red Sea conflict leading to longer transit routes, market sources said.

The unprecedented surge of up to 150% in ocean freight rate by shipping lines has severely impacted the rice exports industry in India, a Delhi-based exporter said. The whole situation is discouraging the exporters from doing any business, he said.

All major container ports, such as Mundra, Nhava Sheva, and Vizag, are experiencing congestion, with over 200,000 mt of cargo lying there, said Varun Goel, Vice president of Indian Rice Exporter's Federation. Confirmed booking release orders have been cancelled since May. Container freight rates from Nhava Sheva to Cotonou have surged from $1,200-$1,300 per TEU (twenty-foot equivalent unit) on May 10 to $4,000 per TEU at present, he said.

For India's rice exporting sector, soaring freight rates since May gave an indication of the budding catastrophe.

Freight rates have been rising since the end of May, another Delhi-based exporter said. Despite having booked containers, a prominent Copenhagen-based shipping company cancelled most of the bookings due to the sudden rate surge. In fact, to make matters worse, this company (the shipper) cancelled the containers which were already loaded, he said.

The sudden cancellation surge is widespread and is not limited to a few shipping companies.

We are facing the same problem with a Geneva-based shipping company, which cancelled our booked rice cargos recently, another Delhi-based rice exporter said.

The dearth of containers is not only hampering India's rice exporters, but also others in the region.

Freight rates are extremely high, and no one is booking containers at these prices, a Thailand-based rice exporter said. "In the first week of May, container freight rates from Bangkok to West Africa were $3,000 per TEU, but they have now risen to $5,000 per TEU. At these rates, sellers are unable to book containers and are losing business due to the lack of alternatives," he said.

Container versus breakbulk

In India, rice exports are done through both containers and breakbulk.

An exporter from Uttarakhand stated that 50% of Indian rice exports happen typically through containers and the other 50% through breakbulk. However, the recent surge in freight rates has prompted a shift, with 90% of shipments now using breakbulk and only 10% using containers.

The ongoing container crisis has been a double whammy for Indian rice exporters, who are already reeling from New Delhi's restrictive trade policies.

The government banned broken rice exports and imposed additional duties on non-basmati white rice outflows to rein in rising food inflation. By July 2023, the government had restricted non-basmati white rice exports, imposed a 20% duty on parboiled rice shipments and fixed a minimum export price for basmati at $950/mt.

As a result, Indian rice exports plummeted 19.8% on the year to 17.71 million mt in 2022-23, S&P Global Commodity Insights data showed.

While most of the parboiled variety is typically exported to West African countries, Indian basmati rice is primarily shipped to the Middle East.

In terms of destinations, 90% of Indian rice shipments to East Africa and South Africa are containerized. As far as West Africa is concerned, the proportion is equally distributed between breakbulk and containers, market sources said.

"There has been a 70%-80% drop in container shipments for West Africa. I have redirected 200 containers to breakbulk due to a freight cost difference of about $50-$60 between containers and breakbulk," said Jatin Mahajan, the trading manager at Adani Wilmar Limited. "As a result of pre-sold deals at lower freight rates, the company has also faced some losses, but contracts are getting done."

Government's intervention requested

Various rice exporting associations have approached the government of India to intervene in the matter, sources said.

The abrupt surge of 150% in ocean freight rates and frequent cancellations of container shipments have imposed sizable financial burden on the rice exporters, market sources said. India's rice industry is an export-oriented sector, bringing in valuable foreign exchange to the country, and the ongoing freight crisis has rendered rice exporters uncompetitive, sources added.

Indian rice exporters have asked the government to review and regulate the ocean freight rates and engage with the shipping lines to negotiate reasonable and transparent freight rates, an NCR-based rice exporter told Commodity Insights.

Rice prices remain stable

Amid the ongoing container crisis, the Indian parboiled rice price has remained steady so far.

Platts, part of Commodity Insights, assessed Indian PB 5% STX at $539/mt July 2, unchanged on the week, the data showed.

However, market participants see a slide in rice prices in coming weeks in response to the container scarcity.

The current freight issue is likely to pressure rice prices in the coming weeks and cut the already small margins of many exporters, a Pune-based rice exporter said.

India is the world's largest rice exporter and is forecast to ship out 21.47 million mt in calendar year 2024, up 14% on the year, Commodity Insights data showed, which if realized, will be one of the highest shipment volumes ever by the country.

But if the container shortage persists, India's rice exports forecast is expected to be revised down, market sources said.