Hellenic Shipping News Worldwide
The whole world has been brought to a standstill due to the outbreak of the deadly COVID19 pandemic. The economic impact of this has been largely disruptive with only those sectors categorized as essential services being permitted to undertake business operations during the initial phases of lockdown in India. One of these sectors is the Ports sector that has been allowed to function despite the lockdown. However, the lockdown has triggered restrictions on movement, a drop in demand and resultant economic downturn. This is why some ports have had to declare force majeure, which severely limited the scope of their operations.
Nations have resorted to some form of lockdown or the other to flatten the curve of infection. India is not only undergoing the longest duration of lockdown but also benefitting from policy initiatives that are helping extend support to people and businesses affected by the pandemic. On account of COVID-19, economies are expected to contract significantly, with an impact on earnings and consumption. This would lead to a disruption in both the demand and supply sides. Governments across the globe are announcing fiscal stimuli to bolster their respective economies. For India, the stimulus package is 10% of GDP, while Japan (21.1%), US (13%), Sweden (12%), Germany (10.7%), etc. have also announced substantial lifelinesto their economies
In April 2020, India saw its Major Ports cargo traffic decline by more than 21% on account of the lockdown. Power consumption came down by more than 22%, oil & gas demand by 70% and spending has been limited to procuring essentials. This has impacted both the demand & supply curves. Handling of dry bulk cargo, such as iron ore, coal, and oil & gas, has been happening smoothly at various ports during the lockdown since these products are classified as essential commodities. Overall revival in volumes would however depend on how fast demand and actual consumption for various commodities rebounds. With lockdown restrictions being lifted in certain areas, India’s port traffic has already seen a jump and is on a path to recovery.
One must also remember that Ports that are mechanized aren’t as badly affected by lockdown-related disruption. It is the ports that rely largely on manpower that have found the going tough because of lower manpower availability and social distancing norms. In fact, projects across the country have been significantly impacted and may see further delays until the situation improves. This has taken a toll on the ports sector at large, with the industry facing liquidity and cash flow issues. The reasons are aplenty: Lower throughput, loss of business/ revenue on account of limited cargo movement in and out of ports, delay in payments, and delay in projects and commissioning of new facilities.
Whenever there may be a revival we can safely assume it would be gradual. This means the sector will remain saddled with these issues for some time to come. However, there may be some green shoots for ports businesses with strategic positioning. Essar Ports for one has outperformed the broader industry. All Essar Ports facilities—four terminals on the east and west coasts of India with 110 MTPA aggregate capacity—have been operational regardless of the lockdown and have been serving the steel, oil & power industries through state-of-theart mechanized facilities. The company has sustained operations even during this crisis, thereby ensuring the smooth functioning of supply chains, and posting robust cargo growth of 23.5% for the fiscal year ending 31 March 2020.
The government and RBI have done a commendable job to minimize the impact of COVID-19 on the economy and the industry. A series of measures undertaken for the ports sector by Ministry of Shipping include allotment of additional land for storage to accommodate the needs of port users who are facing issues with cargo movement. A waiver of penalty charges to port users on account of delay due to delayed loading, unloading or evacuation of cargo has also been announced. Some of the other measures include deferment of payment of vessel-related charges by shipping lines, as well as waiver on some lease rentals and license fees.
The industry feels there is room to do more. The government should specifically look at several measures to overcome the severe issues faced by the sector. This will not only help boost demand, but also provide relief to industry players. Possible measures that can be adopted include a reduction in interest rates, a moratorium & waiver on debt obligations (interest and principal installment) for a period of atleast six months to industry and service providers, waiver for payment of royalty, license fees, wharfage & berth hire charges during the COVID-19 impact. These will enable cashflow issues of the operators and enable them to survive this crisis.
In order to boost the Indian economy post COVID-19, the Government of India has announced a fiscalstimulus of USD 270 Billion. The package broadly offers additional credit linesto MSME sector, focuses on migrants, farmers and the poor to enable them to survive the crisis, promotes agriculture and allied activities through infrastructure creation and marketing reforms, and introduces structural reforms in sectors like Coal, Minerals, Defence, Civil Aviation, Social Infrastructure Projects, Power, Space and Atomic Energy thus boosting private sector and enabling industry to perform sustainably. The underlying objective is to strike a balance between demand and supply.
The measures announced by the Indian Government have provided the much-needed stimulus at a time when the economy needs support to pull off a revival. The move will also inject liquidity into the system and offer relief to the banking system. Another area which Government is focusing on is undertaking a concerted programme of pushing the nation towards self-sufficiency. This will also boost industrial growth and increase port sector traffic substantially.
It is true that clouds of uncertainty remain. The industry is prone to face challenges, like cash flow constraints, lower demand and stunted growth prospects that are an upshot of hampered operations. However, demand is bound to revive as the world emerges from this crisis. As I said, it will indeed be a gradual process. To give a fillip to the sector in a more sustainable manner, it is understood that the Government is working in tandem with the Major Ports Trusts, and Industry and other stakeholders, on Maritime India – Vision 2030.
India’s population and huge domestics consumption isitsstrength, and the strategic roadmap being worked out is expected to enable India and the Ports Sector to achieve their full potential in the years to come.
Source: By Rajiv Agarwal, CEO & MD, Essar Ports, Arranged on Behalf of Hellenic Shipping News Worldwide (https://www.hellenicshippingnews.com/covid-19-and-its-india-impact-issues-green-shoots-and-way-forward/).