Shipping freight rates from India to Western Europe are set to increase by 33 to 35 per cent with effect from March 1.

This assumes significance as the European Union is India's largest trading partner. But the freight rate hike has nothing to do with any possible war against Iraq.

The Karmahom Conference, the cartel of shipping lines which controls shipping in this sector, has informed shipping companies that freight rates in this sector will increase by $250 per twenty feet equivalent unit containers and $ 500 per FEU (forty feet equivalent unit containers).

Exporters and importers will now pay about $ 950 per TEU and about $ 2,000 per FEU. India's premier line, the Shipping Corporation of  India, too is a leading member of  the Karmahom Conference which represents container shipping lines.

The new freight rates are for cargo to and from Mumbai and Kandla to UK/North Continent,  Scandinavian and Mediterranean ports. The Karmahom conference has described the freight hike as a "rate restoration".

Freight rates in this sector have been stagnant for the last few months owing to the recession and excessive shipping capacity. However, with signs of an economic revival visible, freight rates are set for an increase.

Industry observers, however, are doubtful whether the freight rate hike can be sustained. "The basic problem plaguing this sector is overcapacity," said a senior executive at a shipping line.

"Shippers (exporters and importers) may be able to bargain with individual shipping lines and secure lower freight rates," said a senior executive at a shipping line.

A leading shipper came down strongly on the conference. "The freight hike comes on the back of an increase in documentation charges by Rs 100 to Rs 500. Such arbitrary hikes will result in increased transaction costs for Indian exporters and affect their global compettiveness," he said.

Apart from SCI, the other members of the Karmahom Conference are CMA-CGM, Contship Container Lines, Ellermanh, Evergreen Marine Corporation, Hapag Lloyd,  K Line, Malaysia International Shipping Company, Norasia, Maersk Sealand, P&O Nedlloyd, Rickmers Linie, Safmarine, United Arab Shipping Company and  Yang Ming Line.

The Karmahom Conference and shippers have locked horns over the years over various issues like freight hikes, terminal handling charges and documentation charges.

The attempt by several committees to sort out the issues between the two sides have proved inconclusive.

The entry of SCI with three ships in the early nineties in the India-western Europe sector is widely believed to have exercised a stabilising effect on freight rates.