The Russia-Ukraine crisis has spiked the shipping cost, to blunt its impact the Apex exporters body FIEO approached the government and requested the rollout of a freight subsidy scheme for micro, small and medium enterprises (MSMEs), at least temporarily.
Presenting the concerns in front of the finance minister Nirmala Sitharaman, the FIEO while highlighting that the high freight rates have already affected exporters in 2021 and hurt their profitability said, “We were looking to the softening of freight charges in 2022. However, the recent global developments have pushed the freight rates again and we don’t expect them to come down in near future. Our MSMEs require little support in the form of a freight subsidy scheme, which may be given for a limited period.”
Of course, exporters concede that shipping costs have spiraled across the globe and India isn’t an outlier.
Adding fuel to the already elevated global shipping cost is the elevated crude oil prices and a rise in insurance charges. This has had a sobering impact, particularly on dry-cargo despatches. The rising costs will compound supply-side issues and hurt India’s ability to ship out to not just Russia or Ukraine but other nations as well.
As per Drewry’s composite World Container Index, as an aftermath of the COVID outbreak in 2020, the global freight rates started surging at a fast pace and reached an all-time high of $10,377 per 40-foot container in late September 2021. It was this year in mid-February that the rates have begun to ease and came down to $9,051 before inching up again to $9,180 by March 10. In recent days, the index has gone up by 83% from the year before.
Speaking of the Brent crude oil the prices topped $100 per barrel again in intraday trade on Wednesday, after news of slowing demand from China in the aftermath of a fresh surge in Covid cases eased a tad, although signs of progress in Russia-Ukraine peace talks weighed on the gains.
Currently, the government’s Transport and Marketing Assistance (TMA) scheme provide some support, but it is primarily for farm exporters. The scheme which was reintroduced by the center this fiscal with larger coverage and greater support reimburses exporters a certain portion of freight charges. Rates of assistance have been raised by 50% for exports by sea and 100% for those by air.
To meet the merchandise export target of $1 trillion by FY28 set by the nation, the shipping cost must remain reasonable, as the overpriced shipping costs hurt the small and medium exporters.
The country’s exports rebounded strongly this fiscal, after a pandemic-induced slump last year, and are likely to cross a record target of $400 billion.
