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South Asia faces the heat as container crisis deepens on long-haul routes

Highlights

Surge in prices out of South Asia

Container premiums getting common in S Asia markets

Equipment shortage persists; carriers reluctant to take orders

Small-scale exporters hit the hardest

After a year of unprecedented rate hikes and seemingly never-ending operational troubles in the north Asia container market, South Asia may be the next hotbed for equipment shortages and record high rates.

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South Asian countries, led by India, have seen a series of new surcharges and rate increases in the last few months as demand has picked up while supply continues to decline, mostly on account of carriers deploying a higher capacity in China, sources said.

German carrier Hapag-Lloyd has announced a General Rate Increase, also known as GRI, of $1,200/twenty-foot equivalent unit and $1,500/forty-foot-equivalent unit for all shipments from the Indian subcontinent to the US and Canada, effective Aug. 15. The carrier also set a GRI of $500/FEU for shipments from India to Bangladesh and $100/container for Karachi to the Middle East.

French carrier CMA CGM has announced a Peak Season Surcharge of $1,000/container for west coast India to North West Africa, effective Aug. 1.

The premiums, which were so far limited to the long-haul routes originating in north Asia and Southeast Asia, have now become widespread in South Asia, sources said.

"Market premium rates from India to US are as high as $2,000-$3,000/FEU, over and above the FAK rates which are currently at $9,000/FEU," said Peter Sundara, vice president, global freight management, global ocean product at LF Logistics. A further increase is likely in the coming days, Sundara added.

For Pakistan to the US, the average rate during the second quarter was around $7,000-$9,000/forty-foot high cube container compared with $2,500-$3,500 a year ago, said Mohammad Bilal Khan, enterprise sales leader, Pakistan, at digital logistics platform HashMove.

"It won't be too surprising to see this rate touch $10,000/FEU by the end of this year," he added.

The premiums are also prevalent on Thailand-Pakistan and Indonesia-Middle East routes, Khan said.

Equipment shortage

The rising demand in India and Pakistan has been constrained by equipment shortages as carriers are reluctant to take bookings for the short-haul routes in a bid to make maximum profit on the long haul, sources said.

"India is coming out of lockdown and obviously the production and sales have been ramped up and the factories are working overnight to meet up with the lost time in terms of production. We are experiencing sudden surge in demand for both containers and space, but the vessel capacity is limited, resulting in carriers prioritizing all the best paying cargoes," Sundara said.

The country's trade data for June reflects the strength in export demand. India's merchandise exports in June stood at $32.50 billion, up 48.3% year on year, according to its commerce ministry.

"I have at least five-six containers worth of cargo ready to be shipped to Australia, but we've been waiting for containers for 15-20 days without any success. This is when I am paying a premium fee on the shipment," a freight forwarder based in India said.

In Pakistan, demand from multinational clothing brands is high but the container availability is a challenge as exporters' trucks are queuing up for five to 10 days to pick up equipment from the depots, Khan said.

The situation is likely to get worse in the coming days as global shortages and port congestions are far from over and the supply chain is blocked.

Small-scale exporters hit

The skyrocketing freight has hit small-scale exporters the worst as they are holding back orders, hoping for prices to cool off. The big participants are getting an advantage on rates due to their term contracts while the smaller exporters are facing the brunt, sources said.

For many exporters, the freight rate is even higher than the cost of their product and the shipment becomes unviable, sources said.

"I checked the rate for India to Santiago in May, it was at $90/cu m ($5,760/FEU) but now it is at $200/cu m ($12,800). One of the freight forwarders told me $375/cu m ($24,000/FEU). I found it so hard to believe," said Navneet Budania, a furniture exporter based in India.

"I had already quoted a price to the importer in May. With the new freight rates, we are not only staring at losses but also a lot of cancellations," Budania added.