Daal-chaaval might get a lot dearer soon. Disruption to global supply chains, inflated shipping freight costs, delayed container deliveries, increase in minimum wage, labour shortage and a demand surge is adding pressure on importers and distributors to increase costs on imported Indian products or risk business survival.
Ashok Bhatia, Owner of AB International, importer and distributor of well-known brands such as MTR, Nestle, India Gate, Bikano, Tata Salt says things will be grimmer, not just for importers but for consumers as well. Speaking exclusively to Indian Weekender, Mr Bhatia said, “All around costs have gone up for us, which is causing a lot of problems for distributors and importers. Currently, consumers have not faced that kind of a price hike but slowly nobody will be able to absorb these kinds of costs that are going up. It has to be passed on. There might also be some products that we might have to stop bringing (to NZ) because we know consumers will not be able to afford the prices that are coming very soon.”
Putting an economic perspective on these inflationary prices, Dr Rahul Sen, Senior Lecturer at the School of Economics, Faculty of Business, Economics and Law at the Auckland University of Technology explains the increase due to two key factors, “One, wage inflation in NZ, with a shortage of skilled workers, as well as an increase in minimum wage for small businesses, is squeezing their profits and two, from an importers perspective, it’s the supply constraints created due to rising shipping costs, as ports face congestion and there are delays across the supply chain, resulting in cost increases being passed onto consumers.”
As the global economy bounced back and demand for commodities and consumables surged, container shipping rates skyrocketed while a shortage of containers continued to exert pressure on supply chains. Maersk, the world’s largest container shipping firm, last week reported earnings before interest, tax, depreciation of $5.1 billion, a 200 per cent increase from the $1.7 billion reported in the same period last year. According to a report by UK consultancy Drewry, container shipping lines are expected to post an aggregate earnings of $80 billion in 2021, making up for over 20 years of losses.
An increase in freight rates is placing additional pressure on importers who have to pay a premium to get their goods on the few empty containers available at various ports around the world, including India. “Shipping rates have gone up seven to eight times from what we used to pay. There’s no limit for the cost of the freight now. On top of it, after the freight cost, to get a container here, you have to pay a premium. So, we are now paying USD $8,000 or $10,000 where you used to pay $1,000 or $2,000.”, says Mr Bhatia.
This container crunch has resulted in importers planning months in advance to ensure their shipment arrives on time. AB International, which has over 1800 brands under their portfolio and distributes to supermarkets, Indian stores and restaurants around New Zealand, now plans five or six months in advance, instead of two months prior to COVID-19.
Congestion at the Ports of Auckland is creating havoc not just on the delivery schedule of importers but also to the rest of the supply chain described as a “bullwhip effect”, where a?small impact in one part of the supply chain has a large and disproportionate impact as it travels through the?extended supply chain, creating variability and uncertainty.
Delays at the Ports of Auckland due to a stalled automation programme as a result of lack of overseas experienced staff, as well as suspension of berth windows and restricted space for empty containers to be stored before being loaded onto a vessel, among other things, has resulted in a perfect storm at one of NZ’s busiest ports.
“The problem is mostly at the ports, congestion at the ports. Ships are waiting and the ports cannot offload – what are you going to do?” says Mr Bhatia who is facing a delayed delivery that was expected to reach Auckland on the 10th of August but was informed that the ships had gone to Sydney and will now reach Auckland on the 27th of this month. “This affects our commitment to our customers. We can say, we ordered 4 months ago, but when the container goes to Sydney - it’s out of our hands.”, he continued.
Challenges getting goods to the right port, has also seen importers pay thousands of dollars in additional fees. “If your container lands in Tauranga, and you want to bring it to Auckland, you have to pay $1000 USD extra”, Mr Bhatia explained.
Along with the issues in the supply chain, the demand factors, consequently have also contributed to this rising inflation. According to Dr Sen, “Following the fiscal stimulus, a natural short-run outcome of expansionary monetary policy is that you end up getting too much money chasing too few goods (growth of money supply being higher than that of real GDP) and this causes demand-pull inflation due to excess of total spending (demand) over supply. Prices are pulled up by the pressure from buyers’ total expenditures. This, along with the other factors explains the inflation that we are witnessing.”