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Amid the container scarcity problem, automakers now resort to airlifting raw material

Author Name: Basundhara Choudhury
Post Date: 2021-01-09
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Reading Time: 3 minutes

Amid the raging challenges in sea transportation owing to the container scarcity problem, automakers are now resorting to airlifting raw material to overcome problems in sea transportation.

In the last 2-3 months, one of the country’s largest car makers chartered three flights to airlift raw materials and parts from the South East Asian countries to its Chennai plant as sea transportation continued to be a challenge due to the non-availability of containers to and from India.

A company official while requesting anonymity shared that over 150 metric tonnes of raw materials and components were airlifted into the country in three months, which would have otherwise come by sea.

The company expects to do a few more charter trips in the coming months considering the container shortage is not expected to ease in the near future.

“We don’t have a choice, but to airlift, so that our production here will not be impacted,” said the official, adding that logistics cost had gone up nearly 8-10 times.

The company was also compelled to raise the inventory levels to address the “uncertainty” when it comes to shipping lines’ schedule.

From importing around 400-500 containers every month through 20 ships, the company now has only half of the ships in operation at present, while demand from the companies has increased.

The transit time has now increased to around 30-45 days from any earlier gap of two weeks.

Satish Sharma, President, Asia Pacific, Middle East & Africa at Apollo Tyres said that the container shortage had impacted around 10% of the company’s export volumes.

“Freight rates have shot up, and are at 2-3X of the levels we were at, before the shortage started. In addition, the time to place an order for a container has also gone up from 2 days in the past, to almost 7 days now.”

Zen Linen International, one of leading textile exporters, was forced to halt manufacturing at the company’s unit in MEPZ SEZ, Chennai for nearly 10 days since the company could not move the products from the manufacturing units due to shortage of containers.

The company’s Managing Director, Milind Mungikar, said that his factory used to send around 7-8 fully loaded containers every day, but for 2-3 weeks not even one container was moved resulting in a stock pile up. He has now hired a warehouse for Rs 4 lakh a month to stock the goods.

He alleges that shipping lines are taking bookings one or two month in advance, but they are charging INR 4,000 as halting charges per day for a container. This is over and above the 2-3 times increase in ocean freight rates.

The non-availability of containers has increased ocean freight rates by 2-3 times to the US and European ports. While freight rates to US ports increased to around $3500-4000 from $1800-2000 last year, the freight rates to Europe rose to $1600-1700 from $800. For imports, especially from South East Asian countries, rates rose by 2-3 times.

Raja Shanmugham, president, Tirupur Exporters Association alleges that there is an artificial demand being created by the shipping lines.

He said that last year on an average it would cost around $3,000 to move a container from a factory at Tirupur to a warehouse or retail store of a customer. Today it costs around $5000-6000.

Customers are not only ready to pay extra, they are also cancelling orders or going back to China.

Shipping lines agree that container shortage is a challenge and they expect it will ease by the second half of the year.

In the last few weeks, Maersk tripled the repositioning of empty containers from the Middle East and within the country. “We are expecting the balance to return sometime during the first half of 2021,” he said.

Container shortage is not India specific, but a result of the global supply and demand situation- writes Hapag-Lloyd.While there is ample equipment, it is not always there at locations where it is needed while the surge in volumes has cut down the number of containers being repositioned.

Besides, Exim imbalances in the US or other countries, port congestion in destination harbours, chassis availability or rail capacity for inland transports or shortages of labour and marine warehouses also adds to the issue.

“Due to the pandemic, volumes dropped in double-digits in Q2 of 2020 compared to last year. We had to prepare for this by reducing costs, such as by having blanked sailings and rigorous capacity management. In the third quarter, consumption and the demand for capacity significantly went up again,” said the company.

The company claims it has deployed all services and ships back to pre Covid-19 schedules in Q3 2020 already and is optimising vessel capacity and reducing container turn-times wherever possible.

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