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Major Container Shortage and its Impact on International Trade

Major Container Shortage and its Impact on International Trade

Context:

  • Reduction in the number of shipping vessels operating as a result of the Covid-19 pandemic has led to fewer empty containers being picked up, leaving many containers in inland depots and stuck at ports for long durations.

Trade imbalance causes container shortage; freight rates hit the roof |  Business Standard News

Key Details:

  • The government is in talks with exporters to help them deal with an international container shortage that has led to freight rates rising by over 300 per cent in the past year for key shipping routes.

  • The lack of availability of containers and the faster than expected recovery in international trade has pushed up freight rates significantly.

Why is there an international container shortage?

  • The reduction in the number of shipping vessels operating as a result of the Covid-19 pandemic has led to fewer empty containers being picked up, leaving many containers in inland depots and stuck at ports for long durations.

  • Long waiting times at key ports such as those in the US due to congestion are also contributing to lengthening turnaround time for containers.

  • Additionally, structural problems such as the high turnaround time for ships in India also add to the container shortage issue.

  • Container shortage in India is also due to trade imbalance i.e. the uneven import-export scenario.

How is the container shortage impacting Indian exporters?

  • Indian exporters are facing major delays in their shipments.

  • Consequent liquidity issues as they have to wait longer to receive payment for exported goods.

  • Exporters noted that shipments that used to take 45 days are now taking 75-90 days leading to a 2-3 month delay in payments leading to liquidity crunch particularly for small exporters.

How can the government help address this issue?

  • Exporters are calling on the government to regulate the export of empty containers.

  • Exporters have asked the government to curb the export of empty containers at all Indian ports in line with a move by the Kolkata port to restrict the number of empty containers permitted to be exported to 100 per vessel for a three month period.

  • Exporters are also calling on the government to release about 20,000 containers that have been abandoned or are detained by government agencies so that they can augment supply.

  • The Federation of Indian Export Organisations has also called on the government to notify a freight support scheme for all exports till the end of the fiscal when freight rates are expected to normalise.

  • Exporters are also asking the government to push back on a move by shipping lines to offer priority bookings at higher rates, asking that shipping lines revert to taking bookings on a first come first serve basis.

  • In the medium term, exporters have called on the government to take steps to boost the manufacturing of containers in India.

Shipping Industry & Ports in India

  • According to the Ministry of Shipping, around 95% of India's trading by volume and 70% by value is done through maritime transport.

  • In 2020, the Ministry of Shipping was renamed as the Ministry of Ports, Shipping and Waterways.

  • India has 12 major and 205 notified minor and intermediate ports.

  • Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country.

  • The Indian ports and shipping industry play a vital role in sustaining growth in the country’s trade and commerce.

  • India is the sixteenth-largest maritime country in the world with a coastline of about 7,517 kms.

  • The Indian Government plays an important role in supporting the ports sector.

  • It has allowed Foreign Direct Investment (FDI) of up to 100% under the automatic route for port and harbour construction and maintenance projects.

  • It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

Source: Indian Express; www.ibef.org/industry/ports-india-shipping.aspx