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Rising freight costs may see drop in export targets
23
Jun '08
The upsurge in ocean freight rates, slowdown in US and European markets, slackness in construction and real estate business in western markets and imposition of export restrictions have eroded the competitiveness of Indian exporters.

An overwhelming 75% of companies participating in FICCI's Export Survey feel that the export target of US$ 200 billion for 2008-09 would be missed.

FICCI's latest Export Survey, whose findings were collate in June 2008, reveals that the sharp increase in the price of oil has led to a surge in ocean freight rates and this is severely undermining the competitiveness of Indian exporters for long haul export orders.

Some of the companies have cited that their buyers in the US are considering increasingly sourcing from the markets of Canada, Mexico and other Latin American countries.

The survey saw participation from 323 companies with a wide geographical and sectoral spread. The turnover of the companies that participated in the survey ranged from Rs 1 crore to Rs 20,000 crore and the companies represent sectors like automotive, consumer durables, food and food processing, leather, marine products, gems and jewellery, FMCG, textiles, handicrafts, metal and metal products, heavy engineering, IT, pharmaceuticals and chemicals.

The respondents to the survey state that the sharp increase in the price of oil and oil-based inputs has increased their production cost.

The transportation cost for raw materials and for finished goods has also increased and this is putting additional pressure on the exporters. However, what is most important to note in this context is the surge in ocean freight rates.

Several companies have mentioned that the ocean freight rates are seeing a substantial increase and this is severely undermining the competitiveness especially for long haul export orders.

Some of the companies have cited that their buyers in the US are considering increasing their sourcing from the markets of Canada, Mexico and other Latin American countries.

In other words, foreign buyers are showing preference to source from closer production points to save on the freight costs.

If this trend gains momentum then Indian exporters would have to reorient their market strategies and look for markets closer home.

Exporters have also mentioned that the slowdown in the western markets is also having an impact on their business. It is however important to note that this is still restricted to a few sectors.

As an example one can consider the mining and minerals sector where many companies have mentioned that due to the slackening of the real estate and construction business in US and EU demand for products like granite and marble has gone down.

Exporters from the engineering industry have also drawn attention towards the slowdown in the construction industry in US and UK and how the same are impacting exports ofengineering goods from India.


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