ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Container Crisis and High Freight Costs

India’s Policy Ambivalence

Container Crisis and High Freight Costs

The COVID-19 pandemic and subsequent worldwide lockdown(s) have adversely affected the functioning of global supply chains. The restrictions on navigation of vessels across the global supply chains resulted in acute shortages of the containers, subsequently escalating ocean freight rates. High freight rates have severely affected India’s exports competitiveness in the global markets. The crisis has exposed the lacklustre approach of the government in dealing with container shortages, leading to skyrocketing freight rates.

 

The deadly COVID-19 pandemic followed by the global lockdown has disrupted the functioning of glo­bal supply chains (GSC), which led to both demand- and supply-side shocks to the world economy. The depth and breadth of the crisis was so profound that it was unfathomable for countries to immediately respond to this unprecedented challenge. The fact of the matter is that there is not even a single country in the world that remains untouched from such upheavals, including India, which suffered heavily, albeit with varying ­degrees of impact on different sectors of the economy.

The crisis created by the global pandemic has shattered the GSCs that are considered as veins of the global economy. More specifically, the logistics of internationally traded cargo bore the brunt of the pandemic, sequentially leading to supply-chain disruptions, container shortages, demand–supply disequilibrium, domino-effect shocks, and finally tipping it up with port and terminal congestions, unbearable demurrages, det­ention charges and abandoning of cargo.1 As a result, the ocean freight rates have skyrocketed, having grown 3–4.5 times on major routes,2 and even six times in some cases, hampering the ord­erly recovery of international trade, and further distressing the already aggri­eved global trade community. The economic and trade implications are significant for a country like India, considering its limited capability to respond to GSC-led shocks in the absence of any effective logistics road map, let alone a viable strategy for the country. The Indian trade community is one among the worst affected as their logistics costs are making their products uncompetitive with skyrocketing ocean freight, a ­top-up on the existing problems of a country that already has one of the hig­hest transaction costs of doing business in the world (CII report 2020).

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Updated On : 30th Oct, 2021

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