Impact of Houthi Attacks and Increased Chinese Exports
In recent weeks, ocean freight rates for exporters have doubled or even tripled for destinations in the Gulf, Europe, and North America. Exporters are urging government intervention, but significant action seems unlikely. Since the Houthi attacks on commercial vessels began in the Red Sea late last year, major shipping lines have been re-routing vessels around Africa. This rerouting has increased operating costs and extended voyage times by about 15 days, especially for Europe-bound shipments. Although the situation stabilized by March, a surge in shipments from China has caused new disruptions.
Chinese producers, facing a slowdown in domestic consumer demand, have cut prices to boost exports and better utilize idle capacities. Additionally, apprehensions about higher U.S. tariffs on Chinese-origin goods from next month have led to increased exports from China. Many Chinese producers are also setting up manufacturing facilities in Latin America, particularly Mexico, to bypass potential U.S. restrictions. Consequently, the demand for shipping services from China has surged, pushing freight rates to five figures for Europe and America-bound shipments. Even container leasing rates in China have skyrocketed.
Shipping Lines Divert Vessels to China
Sensing opportunity, shipping lines have diverted vessels to China, canceling several scheduled sailings from India and other Asian countries. This diversion has increased freight rates from these regions by about half of what the Chinese pay. Container supplies are also strained, causing congestion at ports, especially transshipment hubs like Singapore, Jebel Ali, and Colombo. Vessels now wait longer at anchorage, sometimes for 8-9 days, increasing costs that shipping lines pass on to shippers. Even at Indian ports like Nhava Sheva and Mundra, ships face longer wait times. Some shipping lines have even stopped accepting bookings due to the severity of the situation.
Long-Term Solutions and Market Adjustments
The Federation of Indian Export Organisations (FIEO) suggests that the government should develop an Indian shipping line of global repute to reduce outward remittances on transport services, which are bound to increase with rising exports. While India has the government-owned Shipping Corporation of India (SCI), expanding its fleet to become a global player seems unlikely given India’s small share in global merchandise trade (only 1.5%). Shipping volumes from India are much lower compared to East Asia, and the government may let the SCI decide on its global ambitions based on commercial judgment.
The current chaos in the shipping industry is expected to persist until the peak season ends in September. Improvement is unlikely until demand for Asian merchandise in Europe and North America moderates. Exporters must understand that the rise in freight rates is a global issue, with the situation being much worse in East Asia.
The global shipping chaos, driven by re-routed vessels, increased Chinese exports, and strained container supplies, is likely to continue until demand moderates. Exporters should brace for ongoing disruptions and rising costs, understanding that these challenges are part of a broader, global issue.