Russia-Ukraine crisis: Exporters fear fresh spike in shipping costs

Russia-Ukraine crisis: Exporters fear fresh spike in shipping costs

Russia’s military action in Ukraine has threatened to further drive up the already-elevated global shipping costs and exacerbate supply-side challenges, exporters told FE. If the conflict lingers on, it can potentially jeopardise prospects of international trade and slow down the pace of India’s export growth, unless the government steps in to soften the blow, some of them said.

The latest spike in crude oil prices and a potential rise in insurance charges will inflate global shipping costs and have a sobering impact particularly on dry-cargo despatches. International brent crude oil prices topped $105 per barrel, the highest since 2014, in intraday trade on Thursday.

Global freight rates started surging at a fast pace in the aftermath of the Covid outbreak in 2020 and hit a peak of $10,377 per 40-ft container in late September 2021, according to Drewry’s composite World Container Index. The rates started easing thereafter to $9,051 as of February 12 before inching up again to $9,477 by February 24. The index has now gone up by 81% from a year before.

“More than our exposure to the Russian market, the high freight cost and container shortages will give India a greater trouble if the crisis escalates and continues for a longer period,” a major garment exporter said.

Ajay Sahai, director general and CEO at apex exporters’ body FIEO, however, highlighted that shipping costs have gone through the roof across the globe and India isn’t an outlier.

Sahai said the precise impact of the current crisis on India’s trade can be gauged only after the exact nature of western sanctions on Russia is clear. He said a wind-down period should be available in the sanctions announced by the Office of Foreign Assets Control (OFAC) of the US to take care of transactions in the pipeline.

Separately, FIEO president A Sakthivel said shipments which are at the ports or in the voyage should be cleared at the earliest and the government should sympathetically consider compensating exporters for any losses to be incurred by them, either during transit of goods or in payment.

India’s exports to Russia grew 36% on year until December this fiscal to $2.55 billion but its imports jumped 81% to $6.89 billion, leading to a trade deficit of $4.34 billion for New Delhi. India mostly buys petroleum products, diamonds and other precious stones and fertilisers from Russia. Similarly, it ships out capital goods, pharmaceutical products, organic chemicals and auto parts to Moscow.

Ensuring reasonable shipping costs remains crucial to realising India’s lofty merchandise export target of $1 trillion by FY28. Exorbitant shipping costs hurt mainly 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.

Check the source here –Source, Financial Express.