Stakeholders offer different views on the impact of the Ukraine-Russia war on shipping logistics and freight rates as some say that Chinese freight rates have fallen as compared to a slight jump in other countries’ freights, while others fear an increase in case the war prolongs.
They say they cannot afford further surges in freight rates as the rupee devaluation against the dollar has already pushed up the cost of imported raw materials as well as the price of finished imported products.
CEO, Indus Motor Company, Ali Asghar Jamali said the combined impact of higher freight rates and rupee devaluation against the dollar on imports of complete and semi-knocked down kits translate into a price impact ranging between Rs200,000 to Rs800,000 per vehicle. On the future impact of freight charges in the aftermath of the Ukraine-Russia war, he said “that will come later.”
Owner of a departmental store chain Al-Fatah and Chairman, Federation of Pakistan Chambers of Commerce and Industry’s Managing Committee, Irfan Iqbal Sheikh said the Ukraine-Russia conflict has so far not hit international ports but a slight surge in the freight by two to three per cent has been witnessed. It is feared to go up by 5-10pc in the next two weeks in case the war intensifies which may hit imports from Europe.
The combined impact of higher shipping rates and rupee devaluation on imports of complete and semi-knocked down kits translates into Rs200,000 to Rs800,000 per vehicle
However, he claimed that the freight rates of China have lowered to $5,500-$5,700 per container from $6,000-$6,500 a few days back as China wants to improve its goods supplies to the world markets. “The next two weeks are crucial which would bring further clarity on the freight rates for Europe which is now $15,000-$16,000 as compared to the pre-Covid-19 rate of $5,000”.
Analysing the combined impact on imported food items relating to freight rates, rupee-dollar parity and higher local transportation cost, he said these factors have pushed up the price by 20-25pc in the last one and a half years.
“If we take into account closure of industries in various parts of the world during peak Covid-19 time followed by port congestions after the opening, supply chain disruptions, soaring freight rates and demand and supply gap, then the price of imported foods have almost doubled in the last year and a half,” says Mr Sheikh.
The government’s restrictions to print products’ specifications in Urdu and other measures to curb imports of foreign items have slowed down the volumes as small importers are not in a position to import large quantities and meet the government’s new rules and regulations. Some big importers are bringing in huge volumes to meet consumers’ demand.
He said that shipping companies all over the world are also likely to give a price jerk in their charges.
Auto part maker/exporter Mashood Ali Khan said though the world’s major shipping routes do not pass near Ukrainian ports on the Black Sea and Sea of Azov, which have been under attack or closed, it will still have an impact on the maritime industry.
The maritime industry is facing two major issues: sanctions and a constant increase in international oil prices. The United Kingdom and Europe have banned Russian ships from calling on its ports. The world’s three largest shipping lines will no longer call on Russian ports. Ukraine’s ports are closed. The war is wreaking havoc on global shipping, which transports 80pc of the world’s trade, he said.
Mr Khan said ships are now sailing the oceans unable to deliver and pick up cargo, while some 140 other merchant vessels are stuck in Ukrainian ports. Many maritime companies predict the risk of coming under fire while food and other provisions run low.
He said Pakistan is located on a different continent but its business community will still face great impacts of the war which is surging in Europe. As the business world has been trying to recover from Covid’s negative impact on the economy, the Russia-Ukraine conflict has intensified uncertainty in the world economy with sanctions being implemented by the top economies of the world and Fortune 500 brands halting their sales and production in Russia.
Already the banking, airlines, oil, gas, tech, agro (food security) and shipping industry have started feeling the impact. This will have a ripple effect hitting all industries around the world, he said.
Before Covid, freight on a 20ft container rate from Taiwan was $600, taking 18 days to Karachi, which after Covid has now soared to $4,000 with an arrival time of 23 days.
From China Qingdao Port, the pre-COVID 20ft container was costing $2,000 but later it rose to $9,000 after the pandemic. Currently, the freight rate has fallen to $4,000 and vessels’ arriving time is 25 days.
The freight rate from Indonesia before Covid was $3,000 which during Covid swelled to $11,000 and currently, it stands at $4,600, Mr Khan claimed.
To offset the impact of rising raw material prices, Pakistan needs to start planning to localise crucial raw materials for manufacturing, he said.
Former Chairman, Pakistan International Freight Forwarders Association, I.H. Qamar said there is a slight increase in freight rates for the US and European destinations while freight rates for the Gulf and the Far East are stable.
He said China is now open after a closure of 15 days. It is premature to say anything about what would happen to freight rates after the opening of China.
Mr Qamar recalled that the freight rate for the USA (East Coast) is now $14,000 per 20ft container while the West Coast USA freight rate is $8,000-$9,000 per container which were $3,000 and $1,800-2,000 pre Covid-19 time.
He said the freight rate for the UK hovers between $8,000-9,000 for exports which were $1,600 ahead of the pandemic. The freight rate for a 20-feet container from China is now $6,000 versus $600 while for the Gulf it is now $800-1,000 as against $100-200 per container.
Offering a different view, Former President Karachi Customs Agents Association (KCAA), Younus Soomro said that vessels movements towards the war zone had been restricted and diverted to China and the Far East. As a result, the freight rates for China and the Far East are now slightly down by $1,500 per 20ft container.
He recalled that China and Far East freight rates had swelled to $8,500 from $2,500 prior to the Covid-19 period while the USA and Europe freight is now $10,000 against $3,000-$3,500 during the pre-Covid-19 period.
Published in Dawn, The Business and Finance Weekly, March 14th, 2022