Airlines in India-Europe trade see no moderation in rate cut ahead of FAK hike plans

The market prospects for container ships operating on the India-Europe trade appear to be deteriorating and the decline in freight rates is not abating.

Average interest rates on the trade route have hit new lows over the past week compared to averages reported earlier this month.

According to market sources, booking rates from Nhava Sheva (JNPT) or Mundra in India to Felixstowe or London Gateway in the UK have dropped to US$550 per TEU and US$600 per FEU, compared to US$650 and US$700 two weeks ago.

Indian export rates to the Mediterranean have also declined, from US$750 to US$650 per 20ft box and from US$700 to US$600 per 40ft box.

The ongoing rate decline reflects the increased freight pressures shipping lines are facing to fill vessel capacity that they had significantly expanded to service stronger-than-expected cargo flows following pandemic-related fluctuations in demand.

With no hopeful signs that carriers are halting price declines or bolstering tariffs, it remains to be seen whether their proposed increases in Freight Rates of All Kinds (FAK) from early August will turn into profits. MSC, CMA CGM and Hapag-Lloyd have already issued trade notes on the scope of the increases they plan to do.

“In our ongoing effort to provide reliable and efficient service to our customers, CMA CGM announces an increase in Freight Rates of All Types (FAK) from India and Pakistan to Northern Europe and the Mediterranean,” said the Marseille-based airline.

But the market poses significant challenges. Indian exports of goods have declined significantly in recent months, with the sharpest fall in value last month falling by 22% yoy.

“Overall, June exports were down, as well as exports in the first quarter of 2023-24, due to slowing growth coupled with a drop in global demand,” said A Sakthivel, president of the Federation of Indian Export Organizations (FIEO).

Sakthivel added: “The slowdown is a consequence of higher energy prices, which are helping to contain demand in Europe’s largest economy and rising inflation.”

He further explained: “One of the reasons for the significant slowdown in the pace of goods export growth in 2023 was ongoing geopolitical tensions, disruptions in the global supply chain due to the war between Russia and Ukraine, monetary tightening and fears of recession, which have led to a continuous decline in consumer spending around the world, especially in advanced economies.”

India’s key exports such as gems and jewellery, textiles and leather goods are under serious pressure amid falling demand in Europe and the United States. However, demand for some other Indian commodities such as electronics, medicines and pharmaceuticals, iron ore, fruits and vegetables, oilseeds, handicrafts (excluding handmade carpets) and coffee remains positive.

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