We have seen how margin erosion happened among API manufacturers when freight charges had increased.
Attaching few concall snippets.
#Divis- "In terms of logistics,shipping cost have not only soared but also
increased unavailability of containers due to increased crude oil prices,empty containers congestion in US ports and blank sailings causing
longer waiting time."
#Laurus- "During the last quarter,industry has faced interim challenges due to logistics,RM availability & higher prices, especially for solvents"
#Solara- "As we all know worldwide increase in logistics cost and that has also had an impact on margins in Q2FY’22."
#Strides- “Logistics cost continues to be high despite moving to sea shipments as sea freight rates witnessed significant jump during the quarter. Logistics cost during the quarter were up
20% quarter-on-quarter and 135% year-on-year.” (Nov 2021)
**#Neuland labs- "EBITDA margin decreased
from 17.7% to 15.0% in 9MFY22 due to **
• Increase in RM prices
• Logistics issues
"
It is worth noting that Neuland makes significant part of their revenues from exports to EU and North America.
The point I’m trying to make is, we may witness some rise in freight costs in near term because of Russia- Ukraine war and rise in crude oil prices.
“Freight disruptions are emerging in Europe and Asia as the impact of Russia’s invasion of Ukraine ripples across the region, causing delays to the movement of goods and sparking warnings of higher shipping costs.”
Seattle-based logistics giant Expeditors International of Washington Inc. said it had shut down most of its operating systems in response to a cyberattack disclosed Sunday, raising fears of further stress on already fragile global supply chains.
“Severe imbalance between capacity and demand continues to heavily impact our industry. There is simply not enough carrier capacity in the air or on the oceans to accommodate the heavy demand for cargo space.”
It seems like we may witness higher freight rates in the coming days and this in turn can cause margin erosion of API exporters. Innovators having multiple sources may prefer near sources than far ones due to supply chain constraints and higher freight costs.