The global shipping industry is once again in the throes of a crisis, echoing the disruptions witnessed during the pandemic. Soaring spot freight rates, a severe container shortage, and the ongoing Red Sea crisis are wreaking havoc on supply chains, impacting sectors from agriculture to automotive.
Spot freight rates have skyrocketed by around 105% in the past three months, reaching $5,806 per 40-foot container as of July 25, according to Drewry’s World Container Index (WCI). While still below the pandemic peak of $10,377, industry experts warn that the current situation is equally challenging due to a combination of strong consumer demand, supply chain bottlenecks, and equipment scarcity.
The automotive sector is already feeling the pinch. Bajaj Auto, India’s largest exporter of motorcycles and three-wheelers, has likened the current crisis to the pandemic, with freight rates to Latin America and Africa doubling in the past six months. Tyre maker CEAT has also been hit hard by rising input costs, including natural rubber and increased freight expenses.
The Red Sea crisis has further exacerbated the situation, forcing ships to take longer detours, leading to higher freight rates and insurance premiums. This has disrupted foodgrain and perishable shipments, impacting a significant portion of the overall cargo volume.
While container volumes are expected to grow by 8% this fiscal, according to CareEdge Ratings, rising shipping costs are eroding profit margins for businesses. Exporters, particularly in fashion apparel, footwear, and high-value perishables, are turning to air cargo as an alternative, but the surge in demand has led to capacity constraints and delays in this sector as well.
Industry players hold differing views on the duration of the crisis. While JSW Infrastructure expects relief in the coming weeks, Adani Ports anticipates challenges persisting through the upcoming season.
As the global economy grapples with these supply chain disruptions, the ripple effects are being felt across various sectors, impacting both businesses and consumers alike.
