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Why Freight rates at an all-time high?

Freight rates have been touching the sky for the last few months. The ongoing pandemic has changed shipping equations across the globe. Most carriers repositioned their containers on profitable sectors and that has led to a massive crunch in the China-India sector.

Earlier this year rates on the China-India sector that averaged around $600 for 20/40’ GP containers have reached up to $2800/$3800.

How pandemic has affected India?

India has been affected by the simultaneous increase in exports and decrease in imports. Overall, Q3 volumes in India were down 8% year on year – exports up 14% and imports down 28%, although up 30% on Q2.

And I do not expect it to get better any time soon. Typically freight rates spike before the New Year as factories across the world try to ship out goods before the festival season starts. That is followed by another spike before the spring festival in China when the factories are closed for 2 weeks at a stretch. The third spike is just before the financial year-end in India as companies try to bring in the numbers and boost their books.

Will the rates rationalize for another quarter?

This effectively means that the rates will not rationalize for another quarter and that does not bode well for the industry. The pandemic has added further to the uncertainty. These increases will inevitably be passed on to the end consumers and that will impact consumption. It seems to be a downward spiral.

Other Problems:

Another problem is the lack of space. For example, as of today, it is virtually impossible to get space in the Thailand-India sector. Importers are struggling as rates soared almost 5 times to 2700$ and yet there is no space available even if one is willing to pay these rates.

Quarantine rules in various ports are not helping either. There are massive delays in most transshipment ports. Colombo for example is facing delays of up to 2 weeks. There are thousands of boxes offloaded in Singapore as well.

The entire situation seems heavily dependent on the way that the pandemic takes. It remains to be seen how soon the vaccines can be deployed and what impact they ultimately have.

Editor: Rekha Atri, C.E.O. iKargso.com