Container shortage and steel prices rattle India’s auto sector

Shortage of containers for exports and high steel prices, threaten to put a spanner in the works for India’s auto industry which is recovering from Covid-19 shocks.

In fact, the Society of Indian Automobile Manufacturers has expressed concern about the impact of these headwinds on production in Q4.

“Shipping Freight Rates were consistently increasing since July 2020 and have reached such levels where our members are finding it almost impossible for sustaining normal trade operations. Further, there is a severe shortage of containers and vessels. We are also seeing a delay in container arrivals.

This situation can lead to disruption of supply-chains of Indian auto companies over next 3-4 months and may even lead to loss of production”, said Rajesh Menon, Director General, SIAM to CNBC-TV18.

Over the last few weeks, exporters have flagged concerns about a sharp hike in freight rates due to container shortage. Rakesh Sharma, the Executive Director of Bajaj Auto, India’s largest exporter of two-wheelers told CNBC-TV18 that the company is worried about losing market share due to container shortage and that the average wait time has gone up from two days to two weeks. “We are facing a terrible situation due to container shortage. Global imbalance of trade flows has increased freight rates by 40 percent. We are able to export only 80-85 percent of our global demand”, said Sharma.

All vehicle manufacturers have decided to raise prices from January 2021 on account of rising steel and raw material prices. The Real Estate industry body CREDAI had recently complained about cartelisation in steel and cement sectors which is creating a shortage and sending prices through the roof. Eicher Motors told CNBC-TV18 on Monday that flat steel prices have gone up by 15-20 percent and there has been a sharp rise in spot prices for steel as well. “Steep prices are having a bad impact on costs. We have already increased prices by 4-5 percent this year. Commercial Vehicle prices are likely to go up further by 1.5-2 percent from January”, said Vinod Aggarwal the MD and CEO of Volvo Eicher Commercial Vehicles.

Industry body SIAM has said that high demand for steel from various sectors has led to a shortage of supply and some iron ore mills are still not working at full capacity. “This has led to delays in vehicle production and some vehicle manufacturers are unable to meet the market requirements due to shortages and consequent increase in steel prices over the last few months”, said Rajesh Menon, Director General of the Society of Indian Automobile Manufacturers.

The auto sector is also grappling with a global shortage of semi-conductors used in Electronic Control Units. Vinod Aggarwal of Eicher Motors has said that companies are facing a hand to mouth situation due to severe shortage of electronic components. Rajiv Gandhi, Executive Board Member of Maruti Suzuki told CNBC-TV18 that Maruti’s production is back to pre-Covid levels but the company is watching supply chains closely.