Congestion at Singapore’s container port is at its worst since the COVID-19 pandemic, a sign of how prolonged vessel re-routing to avoid Red Sea attacks has disrupted global ocean shipping—with bottlenecks also appearing in other Asian and European ports.

Retailers, manufacturers and other industries that rely on massive box ships are again battling surging rates, port backups and shortages of empty containers, even as many consumer-oriented firms look to build inventories heading into the peak year-end shopping season.

Global port congestion has reached an 18-month high, with 60% of ships waiting at anchor located in Asia, maritime data firm Linerlytica said this month. Ships with a total capacity of over 2.4 million twenty-foot equivalent container units (TEUs) were waiting at anchorages as of mid-June.

But, unlike during the pandemic, it is not a buying flurry by house-bound consumers that is swamping ports.

Rather, ship timetables are being disrupted with missed sailing schedules and fewer port calls, as vessels take longer routes around Africa to avoid the Red Sea, where Yemen’s Houthi group has been attacking shipping since November.

Ships are therefore offloading larger amounts at once at big transhipment hubs like Singapore, where cargoes are unloaded and reloaded on different ships for the final leg of their journey, and forgoing subsequent voyages to catch up on schedules.

“(Shippers) are trying to manage the situation by dropping the boxes at transhipment hubs,” said Jayendu Krishna, deputy head of Singapore-based consultancy Drewry Maritime Advisors.

“Liners have been accumulating boxes in Singapore and other hubs.”

Average Singapore cargo offload volume jumped 22% between January and May, significantly impacting port productivity, Drewry said.

Severe congestion

Singapore, the world’s second-largest container port, has seen particularly severe congestion in recent weeks. The average wait time to berth a container ship was two to three days, Singapore’s Maritime and Port Authority (MPA) said in end-May, while container trackers Linerlytica and PortCast said delays could last up to a week. Typically, berthing should take less than a day.

Neighbouring ports are also backing up as some ships skip Singapore.

The strain has shifted to Malaysia’s Port Klang and Tanjung Pelepas, said Linerlytica, while wait times have also climbed at Chinese ports, with Shanghai and Qingdao seeing the longest delays.

Drewry expects congestion at major transhipment ports to remain high, but anticipates some easing as carriers add capacity and restore schedules.

Singapore’s MPA said that port operator PSA had re-opened older berths and yards at Keppel Terminal and would open more berths at Tuas Port to tackle extended waits.

Peak season

The annual peak shipping season has also arrived earlier than expected, exacerbating port congestion, shippers and research firms said. This seems to be driven by restocking activities, particularly in the U.S., and by customers shipping goods early in anticipation of stronger demand, said Niki Frank, CEO of DHL Global Forwarding Asia Pacific.

Container rates, meanwhile, have surged, raising the risk of another spate of price increases for buyers like the post-pandemic inflation spike which central banks are still trying to tame. Rates had stabilised into April but in May “there was a significant increase in ocean freight exports of Chinese e-commerce, electric vehicles, and renewable energy-related goods,” Asia-focussed freight forwarder Dimerco said.

“The peak season, which traditionally starts in June, was advanced by a full month, causing ocean freight rates to soar.”

Container import volume at the 10 largest U.S. seaports in May rose 12%, fuelled by the second-highest monthly import volumes since January 2023, said data provider Descartes.

“(U.S.) consumers are continuing to spend more than last year, and retailers are stocking up to meet demand,” said Jonathan Gold, a National Retail Federation vice president.

Ocean imports into Europe from Asia are also showing signs of a re-stocking season running into peak season—pushing rates to 2024 highs, Judah Levine of freight platform Freightos said.

Container freight prices from Asia to the U.S. and Europe have tripled since early 2024.

Some industry players think part of the reason for the bottlenecks at China ports is fuelled by U.S. importers rushing to buy Chinese goods such as steel and medical products that will be subject to steep tariff hikes from Aug. 1. But newly imposed U.S. tariffs would affect only about 4% of Chinese imports to the U.S., said Jared Bernstein, chair of the Council of Economic Advisers.

Concerns about possible strikes at U.S. ports this year could also be pulling the peak season forward, while DHL said German port strikes were adding to the gridlock.

All of those disruptions will likely mean higher prices for consumers, experts warn.

Representational image of an onion farmer with his produce in Beed, Maharashtra. There has been frequent imposition and lifting of bans on the export of onions
| Photo Credit: B. Jothi Ramalingam

India’s merchandise exports rose 1.07% to hit almost $35 billion in April while imports jumped 10.25% to $54.1 billion, as per Commerce Ministry estimates. The goods trade deficit for the month was 32.3% higher than a year ago, at $19.1 billion.

Gold imports more than tripled in April to $3.11 billion from $1.01 billion in the same month a year ago. Gold imports stood at $1.53 billion in March 2024.

Commerce Secretary Sunil Barthwal said he hoped the rise in merchandise exports in the first month of financial year 2024-25 is a good omen for the coming months.

The ministry also raised its estimates for total exports in 2023-24 to $778.2 billion from $776.7 billion estimated last month, reflecting a 0.42% uptick over the record figure of $776.4 billion achieved in 2022-23.

This revision was based on services exports numbers which are now pegged at $341.1 billion in 2023-24, compared with $325.3 billion in 2022-23. Goods export estimates for 2023-24 remained unchanged at $437.1 billion, 3.1% below the record $451.1 billion tally a year earlier.

Oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia on June 4, 2023.
| Photo Credit: Reuters

The story so far: As India continues to import oil from Russia, it is getting tougher for the country to pay for it. On the one hand, it faces repercussions of breaching the oil price cap of $60 a barrel put in place by the U.S. and European nations as Russia offers lower discounts on its crude. On the other hand, using currencies like the Chinese yuan for payments, which India has already started doing, has its own geopolitical ramifications amid strained ties with Beijing.

Where do oil imports from Russia stand?

Until a year ago, most of India’s oil imports came from West Asia, the U.S., and West Africa but today, a bulk of crude unloading at India’s ports is likely to be coming from Russia.

In February 2023, Russia surpassed Saudi Arabia to become the second biggest exporter of crude oil to India in FY23. Since the start of Russian President Vladimir Putin’s “special military operation” in Ukraine on February 24, 2022, Moscow has been hit by Western banking and economic sanctions. Against this backdrop, it found a ready market for its goods, especially crude oil, in India and offered steep discounts. India, meanwhile, unlike the West, chose to not join the list of countries formally imposing sanctions on Moscow.

As a result, India’s imports of crude oil from Russia increased nearly 13 times in 2022-23 to over $31 billion from less than $2.5 billion in 2021-22. Russia is now the largest supplier of oil to India, displacing traditional players such as Iraq, Saudi Arabia, and UAE. In the four-month period between November 2022 and February 2023, Russia took over the top spot from Iraq. An analysis by Reuters showed how India accounted for more than 70% of the seaborne supplies of Russian-grade oil under $60 dollars a barrel in May.

Which currency is being used for payments?

For starters, as part of war-induced sanctions on Moscow, the U.S., the EU, and the U.K. have blocked multiple Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global secure interbank system. An estimated $500 million is pending for goods already shipped by Indian exporters to Russia and it is now not possible to get the payments through the SWIFT channel.

Thus, in an effort to economically strain Russia, the West targeted one of its biggest traded goods — energy — for which transactions have traditionally been dollar-dependent. Besides an oil ban jointly agreed between multiple countries last year, it was also decided to cap the price to a maximum of $60 per barrel of Russian oil transported through waterways. While India is not a formal signatory, it has tacitly agreed to maintain the price cap as much as possible. Besides, banks and traders may not want to get involved in transactions that breach the oil cap over fears of repercussions for their funds. Until recently, the blends of oil India was importing from Russia were largely below the price cap fixed by G-7 countries and India was able to pay for the oil using dollars. However, Russia has lowered its discounts due to high demand from China and lower-grade oil is now in short supply.

Also Read Data | Russia’s exports to India rise further, trade deficit balloons

What about the rupee-rouble mechanism?

Notably, India was in negotiations with Russia to reactivate the rupee-rouble trade arrangement, which is an alternative payment mechanism to settle dues in rupees instead of dollars or euros.

However, media reports showed in May that the rupee-rouble payment mechanism could not take off. There are a couple of reasons for this — analysts point out there is scepticism on the rupee-rouble convertibility as the rouble’s value is kept up by capital controls and not determined by the market, as in the case of reserved currencies. On the flip side, Russia has also pointed out that it finds the rupee to be “volatile”.

Lastly, and more significantly, the unforeseen surge in oil trade between India and Russia in one year alone has led to a massively ballooning trade deficit. India’s trade deficit with Russia touched $43 billion in 2022-23 as it imported goods worth $49.35 billion while its exports were at $3.14 billion. This has led to staggering amounts of Indian rupees in Russian banks that cannot be used by Russia in its war efforts.

Is de-dollarisation being attempted?

Since the dollar is largely considered the global reserve currency, many countries have seen the U.S. sanctions as a way for America to weaponise the dollar. This has given rise to countries looking at de-dollarisation, which means the replacement of the U.S. dollar with other currencies as the global reserve currency.

India too, has recently released a roadmap for the internationalisation of the Indian rupee to create broader acceptance. It is important to note, however, that the value and the acceptability of any currency depend mainly on its purchasing power, that is, the number of goods and services that can be bought using it and right now, the daily average share for the rupee in the global foreign exchange market is ~1.6%, while India’s share of global goods trade is ~2%.

Meanwhile, Indian refiners have also settled some non-dollar payments for Russian oil in the Chinese yuan and the UAE dirham.

What next?

Experts have pointed out that while India could use the yuan for payments, there are concerns about how that would appear geopolitically as it continues to have strained ties with Beijing since the border standoff. Besides, another solution could be to counter the deficit with Russia by getting it to make investments in energy projects in India or to invest in government bonds.