IMPACT OF WAR ON FOREIGN TRADE
The ongoing Iraq war would result in pushing the freight charges even further
By SYED M. ASLAM
Mar 31 - Apr 06, 2003
Rising shipping costs are feared to push the costs of all sea-bound cargoes to and from Pakistan to unaffordable and uneconomic levels. According to sources in the business community the US-led invasion of Iraq has resulted in increased freight charges even on routes beyond the area of conflict, the Gulf and for that matter the Red Sea, Suez Canal and Mediterranean.
The impact of the beginning of the imminent war, which started with the pre-dawn bombardment of Baghdad on March 20, will result in further increase in freight charges, sources said. It would also result in pushing the insurance costs on all cargoes coming into or going out of the country, they added. The heavy dependence on foreign shipping companies to cater its sea-borne trade makes the situation all the more worrisome because it puts them in a position to dictate there terms and prices. In early March, and even before the eruption of the latest round on war in Iraq, the shipping lines increased the freight charges when one of major shipping line, the Indian Pakistan Bangladesh Ceylon Conference (IPBCC), increased the freight rates on 20-foot container by $ 250 to $ 750-900 and 40-foot container by $ 500 to $ 1,400-1,500 depending on individual member of the group.
The ongoing Iraq war due to its very proximity to the region through which Pakistani conducts its foreign trade to the major trading partners, the US and EU, would result in pushing the freight charges even further. It would also give a pretext to the shipping companies to levy war risk premium to levels which would be unaffordable and uneconomical.
From April 1, all cargo traffic from and into the country would be subjected to a war risk premium — $ 25 for a 20-foot container and $ 50 for a 40-foot container. This was told to PAGE by the chairman of Federation of Pakistan Chambers of Commerce and Industry's Ports and Shipping Standing Committee, Capt. Abdul Rashid. The levy of the war risk premium would push the costs of all imports and exports to and from Pakistan. The levy of war risk premium from next month in addition to increased freight costs would push the cost of all exports from and imports into the country. He also said that the freight charges have also been on constantly rise and are feared to rise even further due to ongoing war in Iraq, particularly if it is a protracted one, the indications of which is all over.
Informed sources in insurance circles confirmed that war risk premium would be increased by all shipping companies serving the destinations in the Gulf region, including Pakistan despite the fact that it is not located in the immediate area of conflict. "The war risk premiums would increase by as low as five-fold and by as much as 20-fold differing from shipping company to shipping company as well as depending on the routes. For instance, cargoes to the US and the EU, Pakistan's top two trading partners, which have to pass through the Red Sea, Suez Canal and Mediterranean would be worst hit. The drastic increase in war risk premium would shy away many not to buy the cover at all."
Quoting reports, the general secretary of Pakistan Merchant Navy Officers Association, Sheikh Muhammad Iqbal, told PAGE that the ongoing war in Iraq has the potential to affect over 40 per cent of shipping in the world primarily due to the fact that the Red Sea, Suez Canal, Mediterranean is the shortest, the most economical and the most widely used shipping corridor of the world. "The closure of this corridor, for whatsoever reasons, would push the voyage time by an additional 12 days around the Cape of South Africa to Europe and East Coast of the US thus pushing the shipping costs to levels which could just not be affordable."
So far the corridor remain unaffected by the ongoing war in Iraq primarily to the fact that the US-led allied forces need it to transport their troops, ships and armaments. This is also feared to take a toll on the merchant marine trade of the countries in the region, including Pakistan, as foreign shipping lines are reportedly booked by the US and allied forces for war-related supplies. Not only the freights and insurance costs are feared to touch unaffordable levels but the unavailability of vessels to lift cargoes going out or coming into Pakistan, which relies heavily on foreign shipping companies to cater to its international trade, is also a worrisome scenario indeed.
Just how strong in a position the foreign shipping companies are in to dictate their terms is evident from their alacrity to increase the freight charges even on corridors far from the immediate area of war in the Gulf. There are indications that freight charges on the Far East routes would also increase irrespective of the fact that it is far from the war zone. Aslam Awan, a Karachi-based importer, told PAGE that shipping companies are quoting increased freight charges already. "Before the eruption of the latest hostility in Iraq, I was importing coal from Indonesia at $ 11 a tonne. However, a few days after the beginning of the Iraq war when I approached the shipping companies to lift the coal from the same country they quoted a freight charge of $ 13.50 per tonne, a sudden increase of over 22 per cent."
The increasing shipping costs, due to increase in freight charges and re-imposition of war risk cover by the foreign shipping companies, necessitates the need for taking appropriate measures to lessen the impact on the national economy, particularly as it has the potential to render exports incompetitive in the international markets and imports expensive to the great financial inconvenience of the people.