The transportation cost of containerised cargo across the world, including Pakistan, has increased by up to 700% due to an abnormal growth in imports following the reopening of global economies from partial lockdown amid the Covid-19 pandemic.
The surge in international freight charges for sea, rail and air routes has offset the positive impact of incentives provided by the government for some imports during the pandemic and may lead to imported inflation in the country.
To control the situation, the government may ask international shipping companies to rationalise freight charges during these testing times. Some experts believe freight charges may go back to pre-Covid levels in four to six months. “International freight charges have surged by up to 500-700% over the past couple of months,” said Pakistan International Freight Forwarders Association former chairman Malik Moin while talking to The Express Tribune.
Freight charges for cargo in a 20-feet container arriving from China to Pakistan increased to $2,000-3,000 compared to around $700 in June 2020 and before, he said.
The abnormal growth in demand for the containerised cargo sent international freight charges soaring.
“Freight charges have surged crazily. I had not seen such a big jump in rates over the past 25-30 years throughout the world,” said Moin, who is also the CEO of Agility Pakistan.
Pakistan mostly imported cargo through the Far Eastern countries like Thailand, China, Hong Kong and Singapore, he mentioned.
Pakistan Ships Agents Association Chairman Mohammed Rajpar said the pandemic had badly disrupted the cargo supply chain around the world, which came to almost complete standstill. When countries reopened following lockdowns, they were almost empty as they had consumed all the goods imported during the pre-pandemic days. Besides, the containers remained stuck in many countries due to lockdowns.
“The situation widened the gap between demand and supply (of imported cargo). The gap was filled by price equaliser,” he said.
The basic rule of economics suggests once you have shortage of something, the price goes up, so that demand matches supply. “It will take another four to six months before the situation normalises,” he said.
“International freight charges have increased by 100-200% since December 2020,” Rajpar said. “They may fall over the next four to six months.”
The situation emerged post-Covid due to imbalances in the number of ships and more importantly the number of containers for global trade, he added.
Covid-19 provided an opportunity for international shipping companies to increase freight charges compared to the pre-pandemic times when they were running in losses. “Shipping companies are overbooked now,” Moin said.
“Pakistan government is not responsible for the situation in international trade. Nor can it (alone) do anything to control it,” he lamented.
He stressed that there was no short-term solution for the government. “In the long run, however, it should increase the number of shipping companies in Pakistan, so that it could intervene.”
International Federation of Freight Forwarders Association outgoing president Babar Badat believes that freight charges would stay at current levels and if they actually came down, they would not fall as low as they were during the pre-pandemic times.
He highlighted that many shipping companies had gone bankrupt around the world and many others had been operating in losses for about three to four years. “The world had enjoyed trade at a low freight in the pre-pandemic days.”
The number of top international shipping companies has come down to three to four only as many companies were either acquired by others or merged to survive during the crisis.
“Government should support freight forwarders and logistics companies if it wants to control such a situation in future as they can collectively … make an impact,” he emphasised.
Shedding light on the impact of increase in freight charges, Pakistan Business Council CEO Ehsan Malik said freight rates had gone up across the world as shipping lines had curtailed their fleet movements due to lower demand. “It affects all the countries, so Pakistan is not uniquely impacted,” he said.
“However, as demand for textiles from Pakistan is higher than other countries (more impacted by Covid), delays in shipments are unfortunate and can result in lost opportunity if others step up production as Covid subsides.”
Malik highlighted that PNSC unfortunately did not have enough container capacity to fill the void. “There is little the government can do. However, if other countries enhance their export rebates, Pakistan should match to remain competitive.”
FPCCI President Mian Nasser Hyatt Magoo highlighted that regional and international shipping companies had apparently formed a cartel to impose exorbitantly high freight charges in a bid to cash in on the post-Covid situation. Pakistan’s importers and exporters pay $5-6 billion every year in international freight charges to the shipping companies.
“National flag carrier PNSC should acquire containerised ships on wet lease (rent) to facilitate the traders,” he suggested, adding that the strategy would help the government keep freight charges under control, make exports competitive, imports cheaper and counter inflation.
He suggested that the state-owned shipping company may operate ships on the China and Middle East routes as Pakistan made most of its imports from those destinations. Besides, the ships could be utilised to transport export goods. At present, PNSC has around 11 ships, but it does not own a single containerised cargo ship.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) former president Zubair Tufail said the spike in international freight charges had increased the cost of doing business in Pakistan.
Published in The Express Tribune, March 16th, 2021.
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