(Source – The Economic Times)
As the European Union’s 37.6 percent tariffs on imports of Chinese Electric Vehicles (EVs) take effect from Friday, and with US tariffs set to begin in a month, exporters and traders worldwide are grappling with an unprecedented shortage of shipping containers. At a recent review meeting in the Commerce Ministry, Indian exporters voiced their concerns about a sudden scarcity of containers, highlighting structural weaknesses that have plagued Indian goods exports since the COVID-19 pandemic.
The shortage has been exacerbated by increased shipping times due to the ongoing Red Sea crisis and renewed trade tensions between the US and China. Indian exporters are particularly affected, finding fewer containers available for their shipments amid a surge in demand for these steel boxes. This surge is driven primarily by Chinese exporters rushing to ship goods ahead of steep US and EU tariffs. The US tariffs, which go up to 100 percent on EVs and 50 percent on semiconductors, are set to come into effect on August 1. Consequently, container demand has surged, leaving Indian exporters scrambling for the limited supply, further strained by the Red Sea crisis.
Contribution of the Red Sea Crisis
The Red Sea shipping route remains under blockade, with near-daily attacks on commercial vessels by Yemen’s Houthi rebels reducing traffic through the route by 90 percent compared to December last year, according to a US Defence Intelligence Agency report. Last month, a bulk carrier reportedly sank, indicating escalating tensions in this crucial maritime corridor. As a result, more ships are taking the longer route via the Cape of Good Hope, increasing voyage times and tying up more containers for extended periods. This crisis has also intensified port congestion, with global port congestion reaching an 18-month high, and 60 percent of ships waiting at anchor located in Asia, as reported by Reuters.
While tariff hikes have been a constant feature of US-China trade relations for several years, the current impact on shipping routes and container availability is unprecedented. The Biden administration has not only maintained Trump-era tariffs but also targeted EVs, the fastest-growing traded item according to the World Trade Organization (WTO). Chinese traders, facing significant overcapacity in EV production, are urgently shipping goods before losing access to major markets like the US and the EU. Additionally, other countries such as Canada and Indonesia are considering or have implemented higher duties on Chinese goods, further straining the container supply.
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Dependence on China for Containers
The root cause of the recurring container shortages lies in India’s limited capacity for container manufacturing and its complete dependence on China for these essential steel boxes. China, which accounts for 95 percent of global container production, dominates the market through a few highly subsidized state-owned enterprises. This dependence has raised security concerns in the US, EU, and India.
In response to these concerns, efforts to boost domestic container manufacturing have gained momentum since the COVID-19 pandemic. The US has initiated plans to reduce reliance on Chinese containers and cranes, and India has also started production efforts since 2021. However, the current shortage underscores the urgent need for these initiatives to scale up quickly to ensure a stable supply chain for global trade.
In conclusion, the combination of new tariffs on Chinese goods, the ongoing Red Sea crisis, and structural weaknesses in container supply chains have created significant challenges for Indian exporters. Addressing these issues requires a concerted effort to enhance domestic manufacturing capacity and reduce dependence on Chinese containers, ensuring a more resilient global trade infrastructure.
