No Container, No Trade: As FTAs Get Signed, India Has To Up Production

Time and again, Indian exporters faced a shortage of shipping containers, particularly during the pandemic and the recent Red Sea disruptions. As a result, the freight rates sometimes increased multiple times.

India’s heavy dependence on China for cargo containers is a key ecosystem complication. It makes the country vulnerable in the wake of any global supply chain fluctuation and geopolitical tension.

FTAs Without Logistics, A Non-Starter

Global trade has been facing headwinds for more than five years now. Part of India’s response to this fast-changing international trade scenario is hinged on its free trade agreement (FTA) negotiations.

India’s attempt to rewrite the trade playbook is an integral part of its plan to emerge as a global export and manufacturing powerhouse.

Experts often say that trade agreements are only as good as the trade logistics infrastructure a country has, including the ships, ports, and containers.

India’s logistics sector has been historically burdened with high costs due to inefficiency. The National Logistics Policy of 2022 has a target to reduce logistics costs from the current 13-14 per cent of GDP to 8-10 per cent of GDP by 2030. However, the gaps in infrastructure and operations remain.

Afaq Hussain, Director, Bureau of Research on Industry and Economic Fundamentals (BRIEF), said, “When all elements of trade logistics, including shipping containers, ports, shipbuilding, and domestic connectivity, are addressed adequately, only then will a new maritime order emerge for India in the long term.”

Global Trade Headwinds

It all started in the first term of US President Trump in 2018, when he initiated a trade war with China. Other countries, including India, were inadvertently drawn into the tussle through retaliatory tariffs.

Then came Covid-19, followed by the second Trump term, which till now is highlighted by steep tariff imposition on major economies by the US, followed by actual negotiations, or attempts to initiate the same.

Trump's tariffs have now been halted by a US trade court. Across the globe, the affected countries, including India, are closely monitoring the developments.

India is in advanced stages in its FTA negotiations with the EU. An FTA with the UK was just signed last month. The country also held the first round of FTA negotiations with New Zealand in early May.

Before that, it concluded a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) in 2024, a Comprehensive Economic Partnership Agreement (CEPA) with the UAE in 2022, and an Economic Cooperation and Trade Agreement (ECTA) with Australia in 2022, among others.

Logistic Gaps And Shortage Of Shipping Containers

India’s current annual production of cargo containers is 10,000 to 30,000, while the estimated average annual demand is 3,50,000 containers. India, therefore, depends on China for around 90 per cent of its requirements. This glaring gap has direct fallouts on the supply chain and export capabilities.

China churns out more than 90 per cent of global shipping container production. India’s dependence on China is not unique, but of course, the country must plan long-term to bridge the gap between requirements and production.

Long-Term Solution For The Container Shortage

Container manufacturing in India has to go up, particularly in hubs like Bhavnagar and Chennai. Government financial incentives and subsidies have to be provided to attract technology partnerships and global leaders in the container industry.

As things stand now, foreign shipping companies handle more than 90 per cent of Indian cargo.

Hussain said, “International manufacturers from Germany and other advanced economies are willing to come. One possible way would be to make the joint venture route more attractive to bring in technology and scale quickly.”

“In the long term, India’s maritime ecosystem needs 360-degree development. Creating new shipping container production facilities needs to be augmented by fast-track port expansion, streamlined customs, and improved warehousing and last-mile connectivity,” he added.