The global market is currently grappling with a significant challenge – a major container shortage. This issue is affecting worldwide trade on a broad scale, with companies and governments scrambling to contain the situation.
Why Has This Been in the News?
This predicament has found itself under the spotlight due to the scale at which it’s disrupting international commerce.
The shipping industry, a vital cog in the mechanism of global trade, is at the center of this crisis.
The Underlying Reasons for the Container Shortage
Two main factors have been identified as the main culprits for the container deficit. These are 1) a decrease in the number of active shipping vessels due to the Covid-19 pandemic and 2) persistent congestion at essential ports, particularly in America and China.
The Covid-19 fallout led to fewer operating vessels, limiting the pickup of empty containers. The long waiting times at strategic ports, especially those in the US due to congestion on Chinese ports, have further contributed to prolonging container turnaround time.
Global Impact of Container Shortage
The world is currently witnessing a sustained economic resurgence, leading to increased trade momentum. The insufficient availability of containers, coupled with quicker-than-predicted recovery in global trading, has triggered a substantial rise in freight rates. In fact, freight rates have soared by more than 300% due to the current conditions.
Effects on India
Indian exporters are among the most affected by the present scenario. These businesses are experiencing severe shipment delays, leading to liquidity problems as extended wait times result in delayed payments for exported goods. Liquidity refers to how speedily an asset or security can be turned into cash without impacting its market value.
The high turnaround time for ships in India – a structural issue – exacerbates the problem.
Action Taken by the Indian Government
In response to this crisis, the Central Board of Indirect Taxes and Customs has directed officers to swiftly dispose of unclaimed, uncleared, or impounded goods that are holding up needed containers. This move aims at facilitating the availability of containers for exporters.
Proposed Way Forward
To mitigate this crisis, the government can take certain actions like regulating the export of empty containers. It could also introduce a freight support scheme for all exports until the fiscal end when freight rates are expected to stabilize, as suggested by the Federation of Indian Export Organisations.
Moreover, the government can oppose any move by shipping lines to offer priority bookings at premium rates, insisting that shipping lines revert to allocating bookings on a ‘first come, first serve’ basis.