Soaring freight rates worrying businesses

Infographic: TBS

Soaring freight rates on major sea routes, particularly the Bangladesh-China route, come as a severe blow to local businesses, which have been struggling for around two years to cope with Covid-induced challenges.

The increased charges, together with shipment delays for everything from raw materials to emergency medical supplies to holiday gifts, have already raised production costs for most goods. Traders said the businesses would suffer greatly if the rates continue to hike.

The shipment costs for a 40-foot container on the Bangladesh-China route has increased by $2,000 in a span of three weeks.

Traders now need to pay $8,000 for a 40-foot loaded container which was just $6,000 three weeks ago. The costs increased by $5,000 or 167% in phases over the last year.

The apparel sector is one of the key sufferers, as the crucial exporting industry is highly dependent on China for its raw materials.

"The recent surge in freight rates on the China-Bangladesh route directly hit our production and raised costs as China is our major source for raw materials," said Rakibul Alam Chowdhury, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

"Apart from the hike in international freight rates, local goods transportation costs have also increased due to the recent fuel price hike. Now, our logistics costs have doubled," he told The Business Standard.

"Despite the adverse situation, we have to increase staffer's salaries by 5% as the new year begins, but our buyers are not increasing the product prices," added Alam.

The sea freight charges on the Bangladesh-USA route increased by 500%, from $3,000 to $18,000 per 40-foot loaded container, in phases over the last year, while it increased by 400% to $12,500 on the Europe route.

The surge in freight rates and associated costs are largely the result of a mismatch between soaring demand and reduced supply capacity, plus labour shortages and continued on-and-off coronavirus restrictions imposed in port regions, according to a recent report of the United Nations Conference on Trade and Development (UNCTAD).

Titled "Review of Maritime Transport 2021", the report forecasted that the high freight rates were likely to stretch well into 2023.

"If container freight rates continue to surge, global import price levels could increase by 11% between now and 2023, while consumer price levels could rise by 1.5%," it reads, adding that developing countries would suffer much.

Meanwhile, Bangladesh increased local freight and other rates for goods shipment. 

The Bangladesh Inland Container Depots Association (BICDA) increased container handling charges by 23% on November 4, while 19 private inland container depots (ICDs) raised by 26%. The Water Transport Cell (WTC), the body of private lighter-vessel operators, increased fares by 15% on 15 November in the aftermath of the fuel price hike by the government.

The fare hike is a concern for all as the traders get their goods with lighter vessels from mother ships anchored in the outer harbour of Chattogram port. Currently, the WTC has 1,300 vessels.

Apart from these, road-transport fares also increased by more than 25% as the government in early November last year increased diesel and kerosene prices by 23% or Tk15 to Tk80.

"The average cost of transporting a goods-laden container from the Chattogram port to Dhaka was Tk15,000 a few months ago, but, it recently increased to Tk25,000-Tk30,000," Mohammed Shamsul Azam, director of the Bangladesh Knitwear Manufacturers and Exporters Association, told The Business Standard.

"There is no fixed fare based on the routes of transporting goods. However, we have rental agreements with some companies," said Chowdhury Zafar Ahmed, secretary-general of the Bangladesh Covered Van-Truck-Prime Mover Goods Transport Owners Association.

Economists believe businesses across the globe were now struggling with increased transportation costs. In Bangladesh, some ill-planned government policies accelerated the suffering.

"The government decision of increasing diesel price by Tk15 at a time when all the businesses were struggling to recover from the pandemic fallouts was wrong," said Dr Moinul Islam, a retired professor of economics at the University of Chittagong.

The economy suffers, as a result, he believes.

He told The Business Standard that transport fares could be increased by 6% for the diesel price hike. However, ICDs, lighter-vessels, trucks, and others increased the prices as per their wish.

"Surge in freight costs on international sea routes and increased local transportation fares raised production costs by at least 25% for apparel exporters over the last year. As a result, the exporters incurred huge losses," said Syed Mohammad Tanbhir, vice-president of the Chattogram Chamber of Commerce and Industries.

"The shipment crisis even increased prices of the majority of consumer items," said Alamgir Parvez, an importer and proprietor of RM Traders.  "In such a situation, continuing businesses became a challenge," he added.