Importers, exporters affected by freight rate increase
By Isuru Ranawana
The increase in freight charges has become a major impediment for importers and exporters to carry on their businesses with shipping companies having to cut down on the number of shipping containers due to the debilitating effect of the COVID-19 pandemic.
This has become a major concern to importers and exporters as they have to incur more than double the freight charges than what they did at the start of the year.
The main barrier that importers and exporters encounter is the rise in the prices as the increase in freight charges directly affects the price of the product. Even though business is down, many companies have added only a very low profit margin to their selling price in order to stay competitive. This is a substantial hindrance faced by small and medium scale businesses.
Let’s consider the main rationale behind this situation. This situation did not occur due to the discrepancies in economic policy. As a matter of fact, this situation occurred due to the COVID-19 pandemic.
This rise in price will affect not only shipping companies but also manufacturers, trading and retail companies as well, which will ultimately affect the consumer. The main cause for this increase in price is the shortage of containers and inadequate space on shipping vessels.
The COVID-19 pandemic that hit the country at the beginning of the year had a big role to play in the situation the industry finds itself today as the year come to an end. The problems began with the quarantine procedures and restrictions of people’s movements hit the port and the number of port employees reporting for duty started to wane. This resulted in a decrease in productivity when it came to activities such as cargo handling. Additionally, as some of the manufacturing companies went out of business, thousands of containers were stuck in the port. Shipping lines also refrained from sailing the standard number of ships due to the decrease in cargo. This resulted in an excess demand which precipitated an increase in freight cost.
On the other hand, China, the largest exporter of goods in the world has managed COVID-19 the best and as a result their businesses have been hit the least.
The rate of inflation is also comparatively lower in China than in Sri Lanka. Since China is supported by the Chinese government, it was able to increase their exports as they were able to produce expeditiously and more extensively than other countries. Moreover, China increased the quantity of vessels sent to the US which had a major impact on Sri Lanka as it resulted in a decline in the ships coming to Sri Lanka. So these factors too contributed to the increase in freight cost. For example, the cost of a 40-ft container sent from China to Sri Lanka at the beginning of the year was USD 1,400. This had increased to USD 3,950 by end October.
According to shipping sources there is a tendency for this situation to continue until March 2021. They further explain that a favourable date for this situation to improve cannot be precisely predicted and as this was the first time our economy has had to deal with a crippling viral disease such as COVID-19, reinstating the economy to previous levels will take much time and effort.
(The writer is a director of a leading exports and logistics company)