SME exporters: a 300% increase in freight costs afflicts SMEs
This competitive environment has severely affected exporting SMEs, which were burdened by these high costs. In a statement, Pushkar Mukewar, co-founder and CEO of Drip Capital, said: “Lack of containers not only increases logistics costs, but also affects the ability of SMEs to fulfill orders and delays payment cycles. while accentuating their margins. If the problem persists, consumer-led economies are likely to seek alternative markets with shorter trade routes to reduce losses. This could seriously harm SMEs which are already grappling with the economic crisis caused by the pandemic. ”
The global shipping crisis is the result of uneven post-Covid economic recoveries in the world’s largest importing and exporting countries. “The main pillars of the crisis are a significant drop in the availability of containers, a reduction in the workforce, a decrease in the number of transport vessels operated and erratic movements in demand for various products. In addition, a delay in the supply of wood to manufacture containers, an increase in the number of discarded containers relative to production has further increased the cost of containers, which rose by $ 1,600 last year. at $ 2,500 this year, “he added in the statement.
In 2019, China contributed 16.1% of global international exports. But when Covid hit, Chinese exports fell 17% in the first two months of 2020. This was due to strict lockdowns leading to a halt in manufacturing, a shortage of manpower to transport inbound containers and the diversion of several reefer containers from major Chinese ports. Therefore, the liners predicted a further fall in sea freight and began to jump docks or even the entire route to protect themselves from large losses.
“Delays in shipments mean that products would have barely a few months on the shelves of buyers, who now run the risk of not selling the products. New orders will not be placed if the buyer suffers a loss. As a result, my strategy for the coming year until the container shortage problem persists is to only export on shorter and closer trade routes. To avoid spoiling my business relationship, for the remainder of 2021 I will not be serving long distance customers, ”said Jignesh Mehta, CEO of Rise and Shine Overseas, in a statement.
The pandemic has caused an economic contraction across the world. In March 2020, with social distancing protocols and coronavirus clusters among dockworkers, a container shortage emerged in Asia as empty metal boxes were stranded in North American and European ports. As China began to recover from the virus and its economic impact, it received orders from North American and European markets and recorded 3.5% year-on-year growth in April 2020.
As a result, China has started to step up its global program of repositioning empty containers. According to S&P data, in June, the total volume of empty twenty-foot equivalent containers (TEUs) shipped from the United States to China increased 188% year-on-year and 245% year-on-year in June and July, respectively. . On the other hand, more goods entered consumer-oriented economies like the United States, where the system of movement of goods had slowed down due to a lack of manpower and a series of disruptions. blockages.
In a statement, Sachin Malani of Shree Metal Products said, “Buyers understand the seriousness of the problem and are willing to share the cost of ocean freight with us. They are also ready to renegotiate the prices of the products. the shipping industry in these pressing times. But, if the cost of transportation continues to rise, there may come a time when our local distributors in the United States will begin to do a cost-benefit analysis. They could assess whether they should continue to import from us or source locally from the United States. Competition with American manufacturers could be a problem for Indian SMEs.
Between August and October, when the lockdown was gradually eased and demand began to rise in the west, requirements for shipping containers returned. This increase in demand, coupled with empty containers being in the wrong place at the wrong time, saw Drewry’s composite WCI jump nearly 27%, from $ 2,059 in early August to $ 2,615 in late October. The index continued to recover, and in June 2021, it touched close to $ 6,430.