Consumers to feel heat of higher input costs

Freight rates have eased from the peak and container availability has improved for India‘s exporters and importers of apparel and agricultural commodities to consumer electronics, but high input costs could force them to increase prices in the coming months, according to industry insiders.

Prices of television, smartphones, refrigerators and air-conditioners are likely to increase 5-6% by next month and another round of price hikes is expected in January-February, due to a 10-12% rise in input cost.

Apparel exporters are renegotiating rates with big brands to pass on higher cost, while prices of agriculture commodities such as basmati rice have already gone up amid crop damage due to the inclement weather in India affecting production and supplies.

Freight cost has cooled 5-15%, depending on the destination, from the peak of $10,000-12,000 in August for carrying a container from or onwards to India.

Consumers to Feel Heat of Higher Input Costs

While this is still high compared with $3,000-4,000 at the beginning of the year, exporters expect the easing of prices and the improvement in container availability to help further boost India’s exports, which rose 43% in October to $35.65 billion.

Exporters were finding it tough to renegotiate prices earlier this year when freight rates were increasing, as buyers, worried about a possible third wave of the pandemic in India and the ability of suppliers to meet their commitments in that event, were unwilling to pay more.

“Now, that the spread of Covid is somewhat under control and the vaccination has picked up across the globe, overseas apparel buyers including the big brands like Zara, Mango and others have agreed to take into consideration a portion of the freight cost while fixing prices,” said Lalit Thukral, president of the Noida Apparel Export Cluster.

However, what is pinching the apparel industry is the rising yarn prices. “It has gone up by more than 60% in the last one year. We have to increase prices of our products, but we are not sure whether buyers will accept it,” he added.

“The container pile-up has reduced and it’s available in about a week than what it was earlier,” said Poorna Seenivasan, president at Gokaldas Exports, a large manufacturer and exporter of apparel.

Consumer electronic companies, which are among the largest importers of components, said shipping and air freight rates from China and Hong Kong have come down by about 10-15% from the peak in August. Container rates are now varying between $6,000 and $6,500 from China, compared with $7,000 even a month back. Air freight from Hong Kong is down to HK$36-37 a kg from HK$44-45.

“The rates are marginally down but still higher than what it was in the June quarter when it was around $3,500 per container. We understand rates would continue to remain on an elevated level and hence the input cost pressure remains, leaving little room to not hike prices,” said Godrej Appliances business head Kamal Nandi.

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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