Freight costs hit pharma firms

Posted AtBusiness-Standard

Exports to CIS markets affected as only one shipping line operates from India.

Indian bulk drug and formulation exports to the fast-emerging CIS (Commonwealth of Independent States) markets are reeling under severe margin pressures as high freight costs and delay in shipments are biting into profitability. Currently, Maersk is the only container shipping line operating between India and CIS countries.

With other container shipping lines shying away from this route, the freight rates have gone up by more than 30 per cent in just six months. The freight rates have now gone up to $2,800 for a 20 feet container from the $2,100 in early 2005.

D B Mody, chairman of the Pharmaceutical Export Promotion Council (Pharmexcil) says, though the council has been promoting the country’s pharma exports to the emerging CIS markets, their efforts rarely bear fruit, as daunting logistical problems keep exporters away.

En route delay caused by long and multiple-mode transportation, which include transport of cargo by sea, road and rail, adds to exporters’ woes.

Cargo set for CIS is ferried to Bandar Abbas (Iran) via sea and later carried by road and rail to the Caspian Sea port of Bandar Arzali, from where it is finally shipped to their final destinations via sea.

Though the country’s flag carrier - Shipping Corporation of India (SCI) has an opportunity now to expand to these routes, there is reluctance to start the container line service in this segment. Pharma industry sources say that the net result is a monopoly for the private operator.

Though the shipping ministry has initiated development in the South-North corridor via Iran (Bandar Abbas) and the Caspian Sea, to reduce time and costs of transporting cargo to Europe and Central Asia, no significant development has taken place on the CIS front.

Sudhir S Rangnekar, director, SCI said, “The CIS route is not commercially viable as it involves multiple modes of transportation. Since this route is mainly for exports, there is no assurance of two-way cargo. However, we will be delighted to start the CIS service if there is cargo assurance.”

Shipping industry analysts say that, while returns to CIS bound service are between $200 and $300, the cost of bringing empty containers back, will cost the company over $1,200.

“The global players such as Maersk Sealand can carry empty containers to other European and US destinations. But for smaller players like SCI, the inventory cost will be a major concern if it was to begin service to CIS countries. Interestingly, disposing off piled up containers will be the best option for small players,” analysts said.

In the CIS markets, Russia, Ukraine, Kazakhstan, Azarbaijan and Uzbekistan are the key markets where the Indian pharmaceutical companies have a presence. Indian pharma exports to these markets are pegged at around Rs 1,260 crore at present.

Major pharma exporters from India to CIS include J B Chemicals, Ranbaxy Labs, Dr Reddys Lab, Shreya Corp, Ajanata Pharma and Torrent Pharma.

Analysts in the drug sector feel that if SCI enters the CIS route, exporters will have another option to bargain with and this, in turn, will end the monopoly and the situation of not having viable transport options.

January 04, 2006