KARACHI: The cost of shipping Pakistani goods to the United States has more than tripled on some routes since January, with freight rates climbing as high as $7,900 per container as war-risk insurance and fuel costs surge, squeezing exporters already locked into contracts at far lower shipping prices.
The impact is being felt most acutely by Pakistan’s textile industry, the country’s biggest export earner, where manufacturers say soaring sea and inland freight costs are eating into margins on orders whose prices were agreed months earlier. Exporters warn the additional burden could run into billions of rupees if the disruption persists.
“Yes, freight has increased,” Syed Tahir Hussain, secretary-general of the Pakistan Ship’s Agents Association (PSAA), which represents foreign shipping lines, told Arab News on Monday.
“Around 200 percent increase has happened,” he said.
Hussain attributed the rise largely to the higher cost of insuring vessels against risks stemming from the regional conflict, as well as more expensive bunker fuel used by ships.
“It is because of the war risk associated with insurance premium of vessels,” he continued. “And their cost, increasing cost of bunker supply to vessels.”
The association’s data show freight rates to the US East Coast have risen 201 percent to $6,320 per 20-foot container from $2,100 in January. Rates for 40-foot containers have climbed 216 percent to $7,900 from $2,500.
On routes to the US West Coast, rates for a 20-foot container have jumped 201 percent to $5,120 from $1,700, while a 40-foot container now costs $6,400, up 220 percent from $2,000.
The increases come as six months of conflict involving the United States and Iran have disrupted commercial shipping around the Strait of Hormuz and pushed up the cost of moving goods through the wider region.
Pakistan was removed last month from a global high-risk maritime list used by marine insurers, a decision expected to reduce additional war-risk charges for vessels calling at Pakistani ports. But shipping industry officials say that has offered little insulation from the wider regional shock affecting insurance, fuel costs and freight markets.
Pakistan’s maritime ministry spokesperson Muhammad Arshad declined to comment on measures the government might take to contain rising freight costs, saying the Federal Board of Revenue, the state’s tax authority, may be better placed to respond.
EXPORTERS ABSORB THE HIT
Textile manufacturers say the increase they are actually encountering on some bookings is even steeper than the averages cited by shipping agents.
“The biggest problem in the rising freight costs that the Pakistani textile industry is experiencing right now is that freight costs have risen astronomically from $4,000 or $5,000 from Karachi port to any main US port up to as high as $12,000 to $13,000. So that’s the first issue,” All
Pakistan Textile Mills Association (APTMA) Chairman Kamran Arshad told Arab News, adding that the pressure was not confined to the sea journey.
“The second issue that we are facing right now is that inland freight costs have risen as well, substantially whether it’s from Punjab or KP [Khyber Pakhtunkhwa] province all the way up to Karachi port or upcountry from Karachi port to Punjab or KP,” he said.
For many exporters, the problem is that the extra shipping bill cannot easily be passed on to buyers.
Arshad said a large share of Pakistani exporters had sold their goods on Cost and Freight, or CNF, terms, under which the seller agrees to pay the cost of transporting the shipment to the buyer’s destination. That means exporters who priced orders when freight was far cheaper must now absorb the increase themselves.
By contrast, under Free on Board, or FOB, terms, the seller’s responsibility generally ends once the goods are placed aboard the vessel at the agreed port, leaving the buyer to bear the main international freight cost.
“The only ones who don’t have to absorb the additional freight costs are those who have sold their product as FOB Karachi port. But those are by far very few and mostly have sold CNF European ports, CNF American ports.”
Chief Coordinator of export associations Muhammad Javed Bilwani described an even more dramatic rise in the rates exporters were encountering on US-bound shipments.
“The price of $1,800 container that used to go to the East Coast and West Coast in the US has increased from $1,800 to $7,000 to $8,000,” said Bilwani, himself a manufacturer, exporter and former president of Karachi Chamber of Commerce and Industry.
The consequences matter well beyond textiles. Bilwani said the sector accounted for around half of Pakistan’s exports, followed by leather, surgical goods, sports goods, rice and meat, leaving a broad range of industries exposed to increases in the cost of reaching foreign markets.
Asked whether exports remained commercially viable at current freight levels, Bilwani gave a bleak assessment.
“No, there is a loss. Your whole year goes in loss. There is a loss of billions of rupees.”
Hussain said how much further freight rates rise will depend largely on the duration of regional hostilities.
“If the war ends, then obviously war risk charges and insurance premiums will become normal,” he said. “So, charges and freight will decrease. In case the hostilities persist, it might be possible that more freight and premiums will increase.”
