Apex exporters’ body FIEO has approached the government to roll out a freight subsidy scheme for micro, small and medium enterprises (MSMEs), at least temporarily, to blunt the impact of a spike in shipping costs in the wake of the Russia-Ukraine crisis.
In its representation to finance minister Nirmala Sitharaman, the Federation of Indian Export Organisations (FIEO) has said that the high freight rates already affected exporters in 2021 and hurt their profitability. “We were looking to the softening of freight charges in 2022. However, the recent global developments have pushed the freight rates again and we don’t expect them to come down in near future,” it said. “Our MSMEs require little support in the form of a freight subsidy scheme, which may be given for a limited period,” it added.
Of course, exporters concede that shipping costs have spiralled across the globe and India isn’t an outlier.
Elevated crude oil prices and a rise in insurance charges have caused the already-elevated global shipping costs to soar further and had a sobering impact particularly on dry-cargo despatches. High costs will compound supply-side issues and hurt India’s ability to ship out to not just Russia or Ukraine but other nations as well.
Global freight rates started surging at a fast pace in the aftermath of the Covid outbreak in 2020 and hit a peak of $10,377 per 40-foot container in late September 2021, according to Drewry’s composite World Container Index. The rates started easing thereafter to $9,051 as of February 12 before inching up again to $9,180 by March 10. The index has now gone up by 83% from a year before.
Brent crude oil prices topped $100 per barrel again in intraday trade on Wednesday, as worries about slowing demand from China in the aftermath of a fresh surge in Covid cases eased a tad, although signs of progress in Russia-Ukraine peace talks weighed on the gains.
The government currently provides some support under the Transport and Marketing Assistance (TMA) scheme. But this is meant primarily for farm exporters. Under this scheme, which was reintroduced this fiscal with larger coverage and greater support, the Centre reimburses exporters a certain portion of freight charges. Rates of the assistance have been raised by 50% for exports by sea and 100% for those by air.
Ensuring reasonable shipping costs remains crucial to realising India’s lofty merchandise export target of $1 trillion by FY28. Exorbitant shipping costs hurt mainly small and medium exporters. The country’s exports rebounded strongly this fiscal, after a pandemic-induced slump last year, and are likely to cross a record target of $400 billion.
