As multinationals post strong growth, shipping rates pose new headwind

As multinationals post strong growth, shipping rates pose new headwind

Despite the rise in key raw materials and energy prices, multinational companies in Nepal have reported robust business in the first quarter of 2021-22.

Nepal’s largest fast-moving consumer goods (FMCG) maker Unilever Nepal reported a 110 percent jump in its net profits to Rs252 million in the first quarter of the fiscal year 2021-22, as compared to the same period in the last fiscal year, according to the company’s financial statement.

The company’s net profit during the pre-pandemic period was Rs246.3 million.

Unilever Nepal attributed the growth to higher sales. The company, however, said that inflationary pressure on material costs this year was substantial.

According to the report of the United Nations Conference on Trade and Development, the high price of shipping could soon translate into a 1.5 percent increase in global consumer prices in 2023, with smaller, trade-dependent countries potentially suffering the most.

The UN said that the impact of higher ocean-freight rates could hit consumers even harder in smaller, import-dependent economies that may see a 7.5 percent cumulative increase in consumer prices.

Consumers could also see a 10 percent increase in prices for imports of certain low-value-added goods, such as furniture, textiles, garments and leather goods.

The report said that there will be no end in sight for the soaring rates for containerised goods, which it expects will remain high because of continued demand, supply-side uncertainties and lingering concerns about port efficiency.

Bharat Raj Acharya, chairperson of Industry Committee in Federation of Nepalese Chambers of Commerce and Industry, said that consumption was high during the festival season after the market opened, causing many multinationals to make profit despite the increase in global shipping costs while importing raw-materials. He said that appreciation of the US dollar against the Nepali rupee also made the shipping cost high.

Unilever Nepal, the maker of Ponds and Vaseline made a quick rebound, posting a net profit of Rs854.1 million in the last fiscal year 2020-21, up 139 percent as compared to the previous fiscal year 2019-20.

Unilever Nepal has eight production lines that includes hair, oral and skin care products, skin cleansing and beverage products.

The company said that demand for its products continue to remain strong as 80 percent of its portfolio is Covid-19 relevant.

“High inflation on key materials as well as the threat of a third wave of Covid-19 poses a significant challenge for the coming quarters,” the company said in its report filed at Nepal Stock Exchange.

Another multinational, Bottlers Nepal (Balaju) that produces Coke, Fanta and Sprite, reported a net profit of Rs469 million, up 34 percent in the first quarter [mid-August to mid-October] as compared to the same period last fiscal year.

The profit was driven by increment in the sales volume, reduction in interest cost, deferred tax and cost saving initiatives, the company said in its quarterly financial statement.

The company reported a net profit of Rs449.73 million for the fiscal year 2020-21, ending mid-July 2021.

The multinational, particularly dealing with fast-moving consumer goods, said distribution challenges in rural areas at effective cost and a rise in the cost of operations are their challenges.

Similarly, market and economic recovery in progress from Covid, fluctuation in foreign exchange impacting material cost, a rise in the cost of operations due to an increase in indirect taxes, and commodity prices and energy price hikes caused by inflationary pressure are the factors challenging in the days to come.

Its subsidiary, Bottlers Nepal (Tarai) posted a net profit of Rs380.95 million in the first quarter of fiscal 2022-22 due to increment in sales volume, reduction in interest cost, deferred tax and cost saving initiatives. The company had made a net profit of Rs286 million in the first quarter of 2020-21.

Acharya said that the profit earnings of the multinational could be transnational as the second quarter may be full of challenges due to rising shipping costs and appreciation of the US dollar.

“There are chances of negative growth due to the rising costs to import raw material and slow consumption.”

The Geneva-based United Nations Conference on Trade and Development said shipping rates have increased more than fourfold over the past decade and the current price to ship a 40-foot container unit from China to the US is now 348 percent higher than the pre-pandemic average.

Nepali traders said that shipping costs, for example, to the United States have more than tripled since the pandemic, taking away the ability of Nepali products to compete with goods from neighbouring countries in the American market. 

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