Automaker forced to airlift raw material as container shortage bites

Companies halt production or pay 2-3 times extra to get slots in ships and containers

One of the country's largest car makers chartered three flights in the last 2-3 months to airlift raw materials and parts from the South East Asian countries to its Chennai plant as sea transportation continued to be a challenge due to the non-availability of containers to and from India.

A company official, requesting anonymity, said over 150 metric tonnes of raw materials and components were brought into the country by air in three months. These would have, otherwise, come through sea.

His company expects to do a few more charter trips in the coming months considering the container shortage is not expected to ease in the near future.

“We don't have a choice, but to airlift, so that our production here will not be impacted,” said the official, adding that logistics cost had gone up nearly 8-10 times.

The company was also forced to increase the inventory levels to address the “uncertainity” when it comes to shipping lines' schedule.

The company and its suppliers used to import around 400-500 containers every month through 20 ships. A present only half of the ships are in operation, while demand from the companies has increased. The transit time, which earlier used to be around two weeks, has now increased to around 30-45 days.

Satish Sharma, president, Asia Pacific, Middle East & Africa at Apollo Tyres, added that container shortage had impacted around 10% of the company's export volumes.

"Freight rates have shot up, and are at 2-3X of the levels we were at, before the shortage started. In addition, the time to place an order for a container has also gone up from 2 days in the past, to almost 7 days now.”

Zen Linen International, one of leading textile exporters, was forced to halt manufacturing at the company's unit in MEPZ SEZ, Chennai for nearly 10 days since the company could not move the products from the manufacturing units due to shortage of containers.

The company's Managing Director, Milind Mungikar, said that his factory used to send around 7-8 fully loaded containers every day, but for 2-3 weeks not even one container was moved resulting in a stock pile up. He has now hired a warehouse for Rs 4 lakh a month to stock the goods.

He alleges that shipping lines are taking bookings one or two month in advance, but they are charging Rs 4,000 as halting charges per day for a container. This is over and above the 2-3 times increase in ocean freight rates.

The non-availability of containers has increased ocean freight rates by 2-3 times to the US and European ports. While 

freight rates to US ports increased to around $3500-4000 from $1800-2000 last year, the freight rates to Europe rose to $1600-1700 from $800. For imports, especially from South East Asian countries, rates rose by 2-3 times.

Raja Shanmugham, president, Tirupur Exporters Association, added that last year on an average it would cost around $3,000 to move a container from a factory at Tirupur to a warehouse or retail store of a customer. Today it costs around $5000-6000. He alleges that there is an artificial demand being created by the shipping lines.

Customers are not only ready to pay extra, they are also cancelling orders or going back to China.

“Our customers have started moving to China (which is also the world's largest container producer) stating that deliveries from India are getting delayed and prices are also high,” said Mungikar.

Shipping lines agree that container shortage is a challenge and they expect it will ease by the second half of the year.

Spokesperson of Maersk, one of the largest shipping lines, said exports out of India have recovered strongly, while imports remain subdued at levels well below pre-Covid volumes. This has created a sustained imbalance between exports and imports, which caused a shortage of containers in certain parts of India.

In the last few weeks, Maersk tripled the repositioning of empty containers from the Middle East and within the country. "We are expecting the balance to return sometime during the first half of 2021," he said.

Hapag-Lloyd said, container shortage is not India specific, but a result of the global supply and demand situation. While there is ample equipment, it is not always there at locations where it is needed while the surge in volumes has reduced the number of containers being repositioned.

Besides, Exim imbalances in the US or other countries, port congestion in destination harbours, chassis availability or rail capacity for inland transports or shortages of labour and marine warehouses also adds to the issue.

"Due to the pandemic, volumes dropped in double-digits in Q2 of 2020 compared to last year. We had to prepare for this by reducing costs, such as by having blanked sailings and rigorous capacity management. In the third quarter, consumption and the demand for capacity significantly went up again,” said the company.

The company claims it has deployed all services and ships back to pre Covid-19 schedules in Q3 2020 already and is optimising vessel capacity and reducing container turn-times wherever possible.