High shipping rates wreak havoc on Nepal’s foreign tradeDomestic traders say that international freight charges have swelled by three to five times, pushing up the cost of imports.
The Covid-19 pandemic brought massive disruptions to supply chains worldwide, pushing up transportation costs to new highs. Domestic traders say that international freight charges have swelled by three to five times, pushing up the cost of imports. At the same time, shipping costs for outbound cargo have exploded by around eight times.
Sunil Kumar Dhanuka (Bansal), president of the Nepal Foreign Trade Association, told the Post, “Freight costs have increased exorbitantly after the pandemic. It currently costs $6,000-$6,500 to ship a 20-foot container from China to Nepal, and $10,500-$11,500 to ship a 40-foot container.”
Before the pandemic, the charges were $1,800-$2,000 for a 20-foot container and $2,800 for a 40-foot container, he said.
“Obviously, the rise in shipping costs directly impacts consumer prices,” Bansal said. "A stronger dollar automatically increases the cost of goods and the transport charges which are added to it," Bansal said. "A hike in freight costs means an increase in the price of goods by more than 20-25 percent for traders."
Shipping costs are a key component of food and non-food prices in countries like Nepal.
"The dollar has also been gaining against the Nepali rupee, with the exchange rate reaching Rs123 in recent times," Bansal said.
“Exporters and importers both have been hit by the increase in freight costs and the rise in dollar rates. A widening liquidity crunch and an increase in the bank interest rate has made things difficult for traders from all around,” he said.
According to the Department of Customs, Nepal's imports soared to Rs1.53 trillion in the last fiscal year 2020-21, recording a steep 28.66 percent jump from the previous fiscal year 2019-20. Total imports in the fiscal year 2018-19 were valued at Rs1.41 trillion.
As per official data, exports surged by 44.43 percent to Rs141.12 billion in the last fiscal year 2020-21. Exports in the fiscal year 2018-19 were worth Rs97.10 billion.
Bansal said that not only have prices soared, traders have to wait for more than 25 days to get a container delivered.
"The daily caseload of the Omicron variant is increasing globally and also in neighbouring India, and this is expected to result in disruptions to the supply chain like during the first and second waves of the Covid pandemic," Bansal said.
“We have started feeling the impact of Omicron in the supply chain,” he said.
Exporters are facing hard times due to disturbances in the international supply chain after the pandemic.
Maheshwor Shrestha, CEO of Everest Fashion that exports Nepali felt products to the international market, said that freight costs had increased to $13,000-$14,000 per container from $5,000 before the pandemic.
“The shipping cost even reached $30,000 per container a few days ago. Air cargo rates have also jumped by more than three times,” he said.
“The hike in shipping charges is a huge hit to exporters like us. As buyers become unable to buy the goods, we lose customers that results in a decline in sales,” he said. "It creates financial stress for exporters who have taken loans from banks to produce the goods and expect to pay them back once their goods are sold."
Shrestha added, "Shipments have plunged by more than 20 percent."
Dharma Raj Shakya, past president of the Handicraft Association of Nepal, said that freight costs have increased by three times compared to before the pandemic.
As most of the raw materials used to make handicraft goods are imported, exporters are facing double trouble while importing raw materials and exporting the finished goods with the rise in prices.
"The increase in raw material prices has pushed up the cost of production. In addition, the rise in labour costs and increased shipping charges have made Nepali handicrafts costlier by 20-25 percent," Shakya said. “As a result, demand for Nepali handicrafts is declining in the international market as they have not been able to compete price-wise,” he said.
Shakya said that handicraft entrepreneurs were receiving fewer orders from the international market.
The year-on-year consumer price inflation stood at 5.32 percent in the fourth month of 2021-22 compared to 4.05 percent a year ago. Food and beverage inflation stood at 4.79 percent whereas non-food and service inflation stood at 5.73 percent in the review month, as per Nepal Rastra Bank.
According to the World Trade Organisation, supply chain disruptions, shortages of production inputs and rising Covid-19 cases weighed on trade growth as the volume of world merchandise trade fell 0.8 percent in the third quarter of 2021.
“The seasonally adjusted exports were down quarter-on-quarter in the third quarter in Asia by 1.2 percent and imports declined by 1.3 percent,” said the report published on Monday.
The United Nations Conference on Trade and Development (UNCTAD) has predicted that higher shipping costs will make goods costlier over the next year.
According to the UNCTAD report published on November 18, the global surge in container shipping rates could raise consumer prices by 2.2 percent in the least developed countries over the next year, based on an 8.7 percent increase in import prices.
Container freight rates skyrocketed amid a surge in demand for freight transport, shortage of shipping containers, and limited capacity and congestion at ports, the report said, adding that the impact was generally greater in smaller economies.