Indian exporters are bracing for a fresh wave of challenges as container freight costs have quadrupled recently, threatening to erode profit margins and increase working capital needs, according to a warning issued by India Ratings and Research (Ind-Ra) on Monday.
While the industry had seen some relief from the exorbitant rates experienced during the COVID-19 pandemic, the latest surge is expected to hit small exporters particularly hard. Ind-Ra noted that the correction in freight and forwarding costs for Indian corporates has lagged behind the global trend and is likely to continue rising this financial year.
The rating agency attributed the spike to a confluence of factors, including increased Chinese exports ahead of new US import duties, higher fuel costs, rising insurance premiums due to Red Sea disruptions, and congestion at major ports caused by longer shipping routes.
Soumyajit Niyogi, Director at Ind-Ra, expressed concerns over the impact on medium and small-sized exporters with thin profit margins. He also highlighted the potential lengthening of working capital cycles, a trend reminiscent of the pandemic era.
Ind-Ra’s analysis of 102 listed corporations indicates that sustained high freight rates could significantly impact business operations, profitability, and working capital management for exporters in the upcoming financial year. The warning comes as a fresh blow to Indian exporters, who are already grappling with a challenging global economic environment.
