Elevated shipping and freight costs - impact on businesses

Since mid 2020 shipping and air freight costs started going up, it looked like a temporary phenomenon but as time elapsed we don’t see these costs coming down. As it looks like a permanent evil for businesses, felt understanding and exchanging ideas about cause and effect is important.

Covid-19 has severely impacted supply chain globally. Manufacturing activity went in to almost grinding halt. US, Europe and Japan have released unprecedented relief measures to their citizens resulting very high demand for goods. Bulk of this demand was met by China as its manufacturing activity did not stop. Containers that went full load to the destinations went back to Chinese ports empty resulted in doubling shipping costs.
Non-stop demand for ocean freight from China to the US, and a severe lack of capacity, ocean rates continued to remain very elevated. Congestion in Chinese ports and Suez canal resulted transit times volatilities. Air cargo rates also shot up as importers and exporters sought alternatives to sea freight.
Manufacturing activity has picked up in US, Europe and Japan but freight costs continues to be at elevated levels.
Under changed environment we need to analyze the profitability models of our exporting companies. Appreciate input from experienced members


In the recently concluded Pokarna earnings call, management mentioned of margin squeeze, one of the multiple reasons is due to higher shipping cost for import of raw material, when I researched I found bulk of the raw material comes from countries other than China.
Chinese shipping companies Yangming Shipping, HMM, Evergreen Shipping, COSCO Shipping, Wanhai Shipping and OOCL all posted triple-digit price gains in the last one year till March 31. China’s export container freight index (CCFI) went up substantially, in the US markets, Baltic Dry Bulk Index (BDI), a key indicator of the shipping industry hits new high ~ 11 year high
Surprisingly, Indian shipping companies did not have the same luck.


Starting middle of December China to Europe shipping rates are falling quite steeply while the shipping rates to US are flat (at elevated levels). Companies that export to countries other than US should see margin increase from Q4FY22.
If has to be noted that several petrochemical products prices have started softening from the peak, this trend would accelerate from Q1FY23. Several Indian chemical companies that export based on fixed price contracts should experience improved gross margin
Please do not act purely based on this message, request you to carry on with your due diligence.

Looks like sea freight costs are going down as we can see in the below picture

Reference: Freightos Index

This is great news for our specialty chemicals and Pharmaceutical exporters. These companies were suffering both sides viz. increased raw material price and sea freight. The other good news is prices of commodity chemicals and majority of KSMs are in a downward trend, need to see how long will this trend continue

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