Rotten pomegranates, unsold garments mark the ‘worst time’ for Indian exports
Labour and logistics’ issues are making it overwhelmingly difficult for export operations to resume from the country. The steep rise in logistic costs has only added to the problem.
Lockdown 3.0 was expected to bring in some respite after restarting of economic activity in a phased manner. Instead, exporters dub it as possibly the ‘worst stage of lockdown.’
Cancelled export orders, lack of clarity on resuming economic activity and insufficient cash flow had already pushed back the export momentum in the country. But what has compounded the on-ground situation further for exporters are the host of labour and logistic issues playing spoilsport at this point.
While acute labour shortage has obviously followed after migrant labourers were allowed to go back home by the government, the steep logistic costs have not softened the blow in any way either.
For Pankaj Khandelwal, Chairman and Managing Director of INI Farms, a horticulture company with 85% exports in its portfolio mix, the kind of situation staring at them could well imply that this may be the first such time when halting all operations is the only way out. “Harvest stops in the absence of labour who is involved in specialised tasks. It will put everything to a standstill. Moreover, freight costs for exports have gone up dramatically. It is the worst time,” he rues.
Freight rates on air, ocean, road and rail have all shown a major spike. As per industry estimates, the international freights via air to Europe and USA currently have gone up by 200-300% and are up 50-100% as far as ocean tariffs are concerned.
“With the global disruption in demand and supply, the supply chain cost globally and in India has become a major concern. Logistics’ costs are done on demand and supply dynamics. What we see is that, first of all, international airlines are not moving. We hope that we see some relaxation by the end of this month. Demand is not there except for a few essential commodities,” Shubhendu Das, MD, Hellmann Worldwide Logistics contends.
Grin and bear it?
After a debacle of a performance in March with exports showing their highest ever double digit decline by 34.57% at $21.41 billion, the writing was pretty much clear on the wall.
Logistic disruptions have only added further to the grim narrative in the third phase of lockdown. Other logistic bottlenecks such as lack of labour, inter-state movement, slow operations in Container Freight Station (CFS) and airports, blank sailing by shipping lines due to less demand of cargo and each state having their own set of rules for exit lockdown have all led to things being in a limbo. “Production, supply chain, distribution and finally consumption have all slowed down,” adds Das.
Moreover, differing sets of information and guidelines coming in from time to time have only added to industry players often finding themselves at odds.
Many exporters that ET Digital reached out to say that they had been hopeful for manufacturing activity to restart after the first phase of lockdown itself to enable cash flows. Those in seasonal industries such as garments speak of the mounting losses due to the time bound nature of the orders. “Some activity should have commenced from mid-April itself. A lot of garment orders are time sensitive in nature. By the time the lockdown is lifted or any activity is allowed, the season would have already gotten over,” laments Mohit Gupta, Director of Amtex Industries, a garment and handicraft export firm with its manufacturing unit in Noida.
Similar is the case with Mahavir Pratap Sharma, Past Chairman, Carpet Export Promotion Council (CEPC) who has not been able to resume any activity so far due to their industrial units within city limits in Jaipur not yet getting the nod. Sharma is hopeful to start production within the next 15-20 days. However, he sees activity resuming at a better pace not before June-end or July. “We are hoping we can make our carpet shipments go in August in order to make it for the September-October fall season in the US. We will be looking more at low-cost products now and believe that ready stock at lower prices will be in demand globally.”
Traffic jam
The other issue that is also plaguing the sector at this point is the overburdened ports. Containers have piled up at ports with no activity on the manufacturing front for non-essential items. Ajay Sahai, DG & CEO, Federation of Indian Export Organisations (FIEO) says that though a lot of containers have moved to CFS, it has also choked up. “With manufacturing still not opening up completely, companies will not come forward at this point. Such port related issues will resolve once there is a complete lift up of lockdown.”
A lot of material continues being stuck at ports, thereby restricting export activity from revving up. “Operations at ports have started but it is still low. The biggest challenge is in Chennai where a serious crunch of labour and truck drivers is being seen,” reveals Das.
Especially for those exporters in the perishable food category, the issue at ports implies a greater risk. “If the harvested fruits remain with us for a longer period of time due to the bottlenecks in the onward logistics movement, or if the vessels do not come into the Mumbai port, then we are left with excess inventory and the fruit runs the risk of going bad,” adds Khandelwal of INI Farms which focuses on export of pomegranates and bananas.
The coronavirus pandemic had led to clogging up of many ports also due to a paucity of labour to unload and transport goods. Industry body FIEO, in fact, among many of its concerns had also flagged port clearance as imperative to the government for resumption of trade activities in the ongoing scenario.
Exports reboot
For now, it seems a long haul. Das highlights that even if the economy opens up, it will take 90-120 days for the business ecosystem to stabilise. “We will be able to see positive momentum only in the last quarter of 2020, if India is able to arrest the growth of Covid-19 positive cases,” he says, forthright in his admission.
Moreover the challenges of global demand from Europe and USA, return of migrant labourers, cooling down of freight costs and opening up of scheduled airlines, shipping lines and domestic transportation will all add up to activity restoring at a slow pace.
Rhitiman Majumder, co-founder and CEO of Pickrr.com, a logistics aggregator, says that logistics is the first roadblock to be cleared if the Indian export industry is looking to get back on track. “All pending consignments on hold at warehouses should be actively moved out and factories need to be made operational even with rotational labour schedules. This would also give an incentive to the labourers to stay back at their respective work locations rather than moving back to their native cities,” he says.
The road ahead will also need tweaks as far as the exporter mindset and outlook is concerned. Using professional acumen to partner with the right logistic players and a strong contingency plan will hold them in good stead in the times to come. “Exporters need to have a very strong cost model going forward — they should run their business on a cost leadership model and not on emotions. There has to be a strong commitment to international buyers by trying to keep their cost at a lucrative rate in order to retain their business. There will be cut throat competition in the international market. They cannot afford to be penny wise, pound foolish,” rationalises Das.
Source: Economic Times
