Falling Global Freight Rates Bring Respite To India's Foreign Trade

(MENAFN– The Arabian Post)

//thearabianpost.com/?s=By+K+RaveendranBy //thearabianpost.com/?s=By+K+RaveendranK Raveendran

Amidst global supply chain disruptions and the attendant cost escalations, there is some encouraging news for India’s merchandise trade. Oversupply of containers is forcing a correction in the second-hand container market prices in the wake of average container prices and leasing rates declining globally since October 2021.

The current situation of oversupply of containers is attributed to a series of reactionary market disruptions that began soon after the outbreak of the pandemic in early 2020. With the rise in demand, congestion at ports increased and the container capacity was held up for a considerably long period of time. This led to the panic ordering of new boxes at record levels. But with time, as markets reopened and demand softened, there has been an oversupply as a natural outcome of demand-supply forces balancing at new levels.

According to figures compiled by Container xChange, which monitors availability fluctuations across China, India, Indian Subcontinent and the Middle East, freight rates have come down by approximately an average of 20 percent since the beginning of the year 2022 and these will continue to slide gradually.

Continuing disruptions in certain cases and inflation concerns building stress in the main economies are also important factors that might determine the course of the freight market in the coming months.

New published data indicates an excess of 6 million TUEs of capacity in the global fleet of containers. Container xChange analysis further states that the oversupply will obviously lead to the requirement of more depot space which is already scarce. And in a scenario where global supply chain disruptions will fade away with time, there will be higher box productivity , which will mandate fewer boxes per unit of cargo.

An interesting point about the logistics industry is that in the long run, ocean freight demand is forecasts a multiplier of global GDP growth. With GDP prospects remaining dim in most economies in the wake of pandemic, lockdowns and now persisting concerns about inflation and recession, the outlook for the industry is none too bright, it is pointed out.

For India’s export-import trade as well as the economy, the new developments augur well. India’s high trade deficit in recent months has been attributed to higher merchandise imports in terms of value due to global supply chain disruptions, inflation and domestic manufacturers building inventories to secure themselves from future supply shocks.

According to commerce ministry statistics, India’s overall exports in April-May are estimated to be $124.59 billion, a growth of 25.90 percent over the same period last year. As per the data, merchandise exports for May were of $38.94 billion (20.55 percent up year on year) and imports of $63.22 billion (62.83 percent higher compared to the previous year.

The highest growth in exports in the month was for petroleum products, raking in $8.55 billion, a 60.87 percent jump as domestic refiners stepped up exports of automobile fuels overseas for better price realisation. There was also growth in electronic goods, leather products, coffee, cereal preparations, and oil meals.

India’s foreign trade has undergone structural changes not only in terms of product basket, but also in the geographical composition of the trade. Accordingly, India’s share in global merchandise exports has risen from 0.6 percent in early 1990s to 1.7 percent in 2016, and similarly the share of imports has risen from 0.6 percent to 2.4 percent during the same period. Foreign trade which constituted around 13-15 percent of India’s GDP in the early nineties, peaked at 55 percent in 2012- 13 and today accounts for around 40 percent. (IPA Service)

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