India should do away with import bond to increase global presence in shipping industry: Christian Roeloffs

Christian Roeloffs, chief executive officer of Container xChange

The Indian government should do away with import bonds in order to tap into the global transhipment traffic and increase its presence in the global market, Christian Roeloffs, chief executive officer of Container xChange, told Moneycontrol in an interview.

Roeloffs added that the political and economic uncertainties in Sri Lanka and congestion at Colombo port have created an opportunity for India to increase transhipment traffic in the country. And in order to take advantage of this opportunity the Indian government should adopt digitisation to improve efficiency of its ports and look to incentivise global shipping to set up base in India, Roeloffs said.

Transhipment is consigning containers to an intermediate destination for onward shipment to the final destination. The Port of Colombo was one of the busiest in the region before the recent crisis in that country.

An import bond is a legal contract between an importer or shipper, a surety company, and the government that guarantees the importer complies with customs regulations and that the government is paid for applicable import duties, taxes, fines and penalties.

Container xChange is a logistics services platform and world’s first online B2B marketplace that enables trading and leasing of shipping containers. Edited excerpts:

 Q. How have the political disruptions in Sri Lanka affected the movement of transhipped traffic globally? Have Indian ports benefited from the unfortunate disruptions at Colombo Port?

From a fragmented market, the Indian shipping industry is moving encouragingly to a truly global, integrated market for containers. Amidst the economic and political tensions in Sri Lanka, the Indian subcontinent’s dependence on the port of Colombo is gradually becoming known.

The stark changes in the maritime dynamics can be related to the country’s efforts to get itself an east coast transshipment terminal. Due to the Colombo crisis, more and more transshipment containers have been directed to ports on India’s east coast.

Ports in South India have gradually started increasing their capacity to handle increased cargo traffic owing to the continued crisis in Sri Lanka. While the cash-strapped country works towards emerging out of the macroeconomic dysfunction, India has an opportunity to get itself some permanent shipping diverts towards its shores.

However, there is much work to do for Indian ports to woo the Colombo-bound ships, from increasing their draught (the water depth in the harbour—the greater the draught, the bigger the vessels that can be accommodated) to match that of Colombo’s to developing strategically placed ports on the shipping route. Starting from scratch might not be the key here, rather expanding the already-present ecosystem will reap more benefits in the long run and get India its place in the global value chain.

 Q. What more can the Indian government do to help ports take advantage of the disruptions in Sri Lanka?

One of the biggest things the Indian government can do is to do away with import bonds on containers. Import bonds really reduce the efficiency of transporting containers through India and are cumbersome.

The Indian government also needs to embrace digitalisation and digital infrastructure. We see this across the globe, that the willingness to integrate with tech partners is increasing, but it’s still not where it needs to be to really enable a massive efficiency increase.

Q. How have container rates fared at Indian ports in the last few months and what is the expectation?

While global average container prices have increased by up to 15 percent in May, average container prices in India have declined, like the trend observed in China and many more countries worldwide.

There has been a continuous month-on-month decline in the prices of 40-foot-long containers at Chennai Port from $4,044 in April to $4,015 in May, while the prices in the ports of Nava Sheva and Mundra have increased slightly.

According to our trading insights, as on May 25, 40-foot-long containers at Chennai cost around $4,897, $3,516 in Nhava Sheva and $3,430 at Mundra Port.

For 20-foot-longs, the prices rose by a slight margin of $12 in Nava Sheva though they dropped in Mundra and Chennai.

In the coming weeks, the prices for 20-foot-long DCs //pl expand// in major Indian ports are expected to stay between $2,100 and $2,600. For 40-foot-longs, in the near future, the prices are expected to be between $3,600 and $4,400.

 Q. Has India faced any disruption or curbs in imports and exports due to the government’s stand on the Russia-Ukraine conflict and India continuing to import from Russia?

India has not faced any EXIM curbs from countries and I don’t expect there to be any kind of second effects of India’s trade with Russia.

Q. Indian trade bodies have called for a dedicated shipping line. Do you think India specifically needs a global shipping line?

Absolutely not.

I think that will completely backfire and wouldn’t be good for India in the long run.

If you look at the global market, only two countries—Israel and Taiwan—still have national shipping lines, while all other major shipping lines are operated by private parties.

I think the Indian government should start focusing on incentivising competition, and should look to attract global carrier networks to focus on India.

Q. Are shipping lines or container manufacturers looking to increase capacity in the next few years in order to meet the rising demand for cargo movement across the world?

Shipping lines are not looking to increase capacity in the near future and it would be very difficult for them to get new ships functional quickly as well.

However, on the container manufacturing side, companies were working at maximum capacity utilisations and were really looking to pump out as many containers as possible in order to capitalise on the very high prices of containers of the past two years. In the latter half of 2020 and 2021 container manufacturers were working at nearly full capacity.

However, in 2022, container orders have gone down as global disruptions ease and supply chains normalise. We expect production of container manufacturers to keep falling from here on out because as supply chains normalise, container efficiencies will improve and in the mid to long term, there will be a significant overcapacity of containers in the next two-three years.

Essentially, what COVID-19 did was reduce the overall efficiency of containers and this resulted in an increased need for containers.

A lot of units were not sold out of the fleet into the second-hand market, but rather kept in fleet and kept getting used for transport.

But as the disruptions fall, and container efficiency goes back to pre-COVID levels, my estimate is that where will be around four and seven million excess containers in the global market and container prices will plummet in the next few years. We could see container prices start falling toward the end of 2022, starting of 2023.

 Q. Why are freight forwarders, traders and shippers expecting more disruption in October-December this year over last year?

The uncertainty around disruptions along the entire logistics supply chain is still prevalent at the moment. We don’t know how new variants of COVID-19 and lockdowns to contain these variants will play out in the mid to long term. These disruptions extend the turnaround times of containers.

The biggest reason freight forwarders, traders, and shippers are expecting more disruptions in October-December is because of this unpredictability of any further waves of COVID-19.

If a ship gets stuck at a port because of COVID-related disruptions and takes another four to six weeks to arrive at its destination, it will take another one to two weeks to be unloaded. And that is a relatively long time. So any volatility, any unexpected changes in the supply chain, plays a big role.

Q. What have freight forwarders, traders, and shippers done at their end to protect themselves from the expected volatility?

Shipping lines and traders haven’t been severely impacted by the disruptions caused due to COVID-19 in the past and disruptions have actually driven up the profit margins because their fixed costs essentially stayed the same and they were able to capitalise on the increase in freight rates, which was caused by the scarcity of containers.

Freight forwarders have increased their inventory; they are setting up timelines to deliver early wherever possible to de-risk themselves from any disruptions that may arise in the future.

Companies are also using digital technology to get more visibility on upcoming changes or new trends, to make sure that they are they react in the right way to any disruptions that may arise.