Acute Container Shortage Spurs Shipping Cost Surge for White Goods

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The geo-political frenzy, particularly that arising from the ongoing Iran-Israel skirmishes, is causing a sharp increase in sea freight costs from China due to acute shortage of shipping containers. This escalation is expected to affect consumers significantly, leading to higher prices for large gadgets such as IT hardware, television sets, washing machines, and air conditioners aka the White Goods.

According to sources, logistics costs have quadrupled in some cases over the past two months for large-sized components primarily shipped by sea. Sunil Vaswani, Executive Director, Container Shipping Lines Association added that transit times have increased by 35 to 40%, reducing the vessel capacity available for loading at ports. It’s not difficult to connect the dots as it’s been a long time since ships have had to reroute to avoid affected areas.

“There are about 330 large ships carrying about 11,000-12,000 containers each, which are taking a longer route—around 8,500 km extra—instead of going through the Suez Canal to avoid conflict zones in the Red Sea to reach their destinations in the US and Europe. That is causing a sudden shortage of containers at ports in China since early May,” explained Harish Kohli, Country Head, Acer.

Logistics costs in manufacturing large-sized electronic goods generally contribute around 2-3% to the overall costs. As of now, shippers are bearing the increased costs, however, they may trickle down to the customers if situations don’t improve in the coming months.

“The rates for both 20 feet and 40 feet containers have increased globally after the Red Sea crisis. As far as India is concerned, the export demand is more for 20 feet than 40 feet containers, and the shipping lines are therefore forced to prioritize 20 feet imports to help meet the export demand,” Vaswani stated.

Importers prioritizing larger but less popular 40 ft containers for goods from China are facing contract cancellations as liners invoke the force majeure clause. This has led manufacturers to resort to more expensive spot rates for shipping. Despite some stabilization in rates for Indian exports, particularly to the West, due to the end of the financial year and additional capacities deployed by shipping lines, the overall disruption remains significant.

White goods refer to large household appliances, typically finished in white enamel, which include refrigerators, washing machines, air conditioners, ovens, and dishwashers. Due to their size and weight, white goods are typically transported by sea freight, which makes the current container shortage and increased logistics costs particularly impactful.

The ongoing geopolitical tensions and resultant logistical challenges underscore the fragile nature of global supply chains, necessitating adaptive strategies to mitigate disruptions and manage rising costs effectively.

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