Some developers are terminating contracts at FOB Incoterms when the freight arrives at the port
Indian solar developers face a new challenge while importing modules, especially from China.
Solar companies are reporting that shipping/freight charges have shot up substantially in the range of 500%-800% in the last quarter, raising the cost of new installations. As a result, contracts are being terminated at FOB (freight on board) Incoterms and the freight at actuals at the ports.
Mercom spoke with developers, manufacturers, and suppliers to understand the reasons behind the sudden rise in container charges and how it is affecting their businesses.
One of the executives at a major Indian module manufacturer said that while the shortage of raw materials or glass for solar modules was manageable, freight charges have shot up. The rise in freight charges is not just limited to India, it is a global challenge.
“The increased freight charges are adding to the cost of getting material from China. Those importing finished modules from China are also facing the same challenge,” he said.
According to the executive, freight cost which used to be $800-$1,000 (~₹58,440- ₹73,050) per container has now soared to $4,000-$4,500 (~₹292,202- ₹328,702) per container.
“In one container, you can roughly import around 200 kW of modules. With a bigger output module, you can bring in 220 kW. If someone ships in five containers, it would add up to 1 MW, meaning he would spend around $15,000 – $20,000 (~₹1.09 million-~₹1.46 million). It is a substantial amount, which adds to the cost per watt. Imagine if someone is hauling in 1 GW or 8 GW of modules from China, it would add up to several containers,” he said.
Another supplier of modules from China said that shipping modules and raw materials are a new challenge his company is facing.
“There has been a six-fold spike in freight charges, which we are squeezing out of our pockets. Earlier our shipping costs were as low as 2-3% when it came to maritime shipping of modules. Now it is as high as 8%. A single container shipped to Chennai would cost us around $600 (~₹43,830), and now it has shot up to $4,800 (~₹350,647). Each month we are shipping 175 containers, and we are incurring losses to the tune of $600,000 (~₹43.83 million). We have no choice but to pay up,” he said.
According to the supplier, there is no genuine reason behind such a sharp spike in costs. “The staple excuse that we are given is that there is a shortage of shipping containers returning to China. Covid had a huge impact on shipping as several voyages were cut short, and many ships were left stranded at different ports. But this still does not justify the six-fold increase in shipping charges and this has become a global phenomenon.”
He said that clients are terminating contracts at FOB incoterms and the freight at actuals. “We have to push the cost on the consumers. In earlier contracts, we took the brunt of the freight charges, but the latest contracts we signed in the last few months are on FOB incoterms.”
According to Vinay Pabba, Founder and CEO of Varp Power, container prices have increased quickly in a short period.
He said that 1 MW of imported modules needs four to five containers. “Earlier, our variables were in control, but the cost of shipping modules in containers has shot up, and now there is a load on our finances. One of the major routes for importing modules from China is Chennai. Here the container charges were around $600-$800 (~₹43,830-₹58,440), but now we see rates in the range of $4,000-$5,000 (~₹292,202-~₹365,257) for each container. So for 1 MW of modules, we are paying around $13,000-$15000 (~₹949,578-~₹1.09 million),” he said.
Pabba said several solar developers like him did not expect the rates to skyrocket and are forced to use company funds to offset the high expenses, “To be honest, we are not able to get a convincing answer to why freight charges have shot up so much. We are seeing this price peak for the last three-four months.”
However, he said there is nothing much the developers can do since rising prices is a trade issue and not a policy issue. “We don’t have any rationale to go to the government because all businesses face risks, and this is one of the operational risks we need to factor in.”
According to the latest trade data, India imported solar cells and modules worth $475.78 million (~₹34.7 billion) in calendar year (CY) 2020, a 78% drop compared to CY 2019. In CY 2019, the Indian solar sector had imported solar modules and cells worth nearly $2.17 billion (~₹158.29 billion).
Source:- Mercom India