The recent drop in crude oil prices has brought down the freight rates of goods exported from India to the US and Europe by 30 to 40 per cent. Leading shipping lines operating between India and Europe and the US said freight rates dropped to $700 from $1,000 and $1,600 from $1,900, respectively, for every 20-foot equivalent unit (TEU) in the past two months.
According to representatives of shipping lines, crude prices dropped almost 60 per cent over the past three months from the record high of $147 a barrel in July to a 17-month low of a little below $63 per barrel on Friday.
This, in turn, has brought down the bunker adjustment factor (BAF) to 12 per cent (on the freight) from 17 per cent.
Industry representatives said the current global economic downturn had also brought down the exports of goods by 7 per cent.
J Balan, who represents a foreign shipping line that operates on the India-Europe sector, said the global economic slowdown had also resulted in a drop in the freight. During this time every year, cargoes wait for ships. This year, the ships are waiting for cargoes. The current capacity utilisation is between 75 and 80 per cent only, he noted.
Freight rates on this sector would fall further due to over capacity, said a Delhi-based shipping consultant. He said currently over 45 ships were operating in this sector and another six were expected to be added by the year-end. This will increase the capacity and bring down the rates further, he added.
Some of the shipping lines operating in this sector include Shipping Corporation of India, Maersk, Hamburg, MSC Bhd, CMA CGM and Rickmers.
Meanwhile, the India-US sector Transpacific Stabilization Agreement (TSA), a research and discussion forum of major container shipping lines operating between Asia and the US, has reported a tradewide 6.9 per cent year-to-date drop in the cargo volume during January to June, compared with the same period a year earlier — from 3.30 million to 3.07 million 40-foot containers. Through July, the year-to-date gap widened to 7.5 per cent.
One of the member line representatives said that the US housing and credit crunch was likely to constrain container volumes from Asia, especially from India to the US well into 2009.
TSA forecasts that cargo demand could decline by as much as 8 per cent this year. Carriers in this sector reported a 1.8 per cent decline in exports during the first half of 2008. Between July and August, they reported an overall 7 per cent drop in cargo volumes.
In view of the current financial condition, shipping companies have decided to trim their cost bases by taking various steps, TSA Chairman Ronald D Widdows said. These include consolidating routes and sailings, entering into vessel-sharing alliances, laying up ships for maintenance and repairs, returning chartered ships, and adding ships to service strings as part of slow-steaming strategies to conserve fuel.
