India’s containerised trade amid global volatility

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The current times forecasts a bearish outlook for India’s containerised trade — reeling under the COVID-19 pandemic, rising geopolitical factors and the downturn in domestic economic activity — signals a bumpy road ahead for ocean carriers that have upsized their service offerings to take advantage of reforms and infrastructure developments in the country. However, downward trend can still be stemmed if government starts fishing for brighter investment spot relative to other Asian markets as multinational conglomerates search for alternative manufacturing locations beyond China.

Upamanyu Borah

Disruptions to sea cargo flows due to the substantial drop in demand caused by the COVID-19 retail shutdowns, have compounded an already pressured situation for shipping lines as they struggle with weaker markets and higher costs from new International Maritime Organisation (IMO) regulations on low sulfur fuel. Besides, trade tensions between the US and China already left in their trail collateral damage.

To the horror of maritime operators, who are facing the greatest existential challenge in decades, the Organisation for Economic Cooperation and Development (OECD) says global growth this year could sink to 1.5 per cent from 2.9 per cent forecast ahead of the virus outbreak.

Ocean carriers generally managed to navigate the supply-disrupted first three months of the year quite well by an aggressive blanking strategy, involving the withdrawal of some 36% of Asia to Europe sailings and 28% of transpacific headhaul loaders during February, but the demand-disrupted next quarters are likely to tip the industry into significant financial loss.

Analysts say 2020 will see “the industry’s poorest financial performance ever”, and that the stress on the balance sheets of carriers will “lead to major reorganisations”.

India’s container trade outlook

Indian port operators are experiencing a drop in cargo volumes since February start and no one is certain about turnaround time. Container shipping lines are idling vessels at a record pace, resulting in growing numbers of boxes being removed from trade network, as they go on cutting sailings on all major trade lanes.

Major global container shipping lines, which include Maersk Line, Hapag-Lloyd, CMA-CGM and China Ocean Shipping Company (COSCO), are reported to have begun completely skipping the country’s top container gateways, including the state-owned Jawaharlal Nehru Port Trust (JNPT), Chennai Port, and the Adani-operated Mundra port. These skips are largely due to low export volume amid factory closures in the wake of the lockdown.

Most of the existing weekly services are calling at Indian ports once in two weeks or even longer. Basically, weekly sailings have gone down because there is no cargo, both ways.

Container volumes at JNPT, India’s top container port, fell 37 per cent in April compared to the same month last year. Pan-India, container volumes have declined by more than 12 per cent since April year-on-year, when the new financial year began.

As containers pile up at ports, even freight rates from India have soared between 15% and 100% depending upon the destination, hurting exporters. The rate per container from Mumbai to New York, for example, is up to about $2,400 (Rs 1.8 lakh) from the usual $1,800, as per industry quotations.

The increased turnaround time of containers has also resulted in a shortage of empty containers, prompting many shipping lines to charge extraordinary “equipment handling charges” of up to $300.

Challenges posed by global volatility

Fixated on the idea that trade is a battle that the US was losing, President Donald Trump set about wrecking the system. And that was before COVID-19. The pandemic caused critical shortages of essential equipment and materials, exposing the fragility of finely tuned, geographically extended supply chains. Suddenly liberal trade was not just a destroyer of jobs, but a killer as well, leaving countries bereft of life-saving supplies.

Imaad Asad, Analyst at shipping consultancy Sea-Intelligence couldn’t agree more. “Both the US-China trade war and coronavirus have been major disruptors of global trade, with the former causing a demand slump on the Transpacific, while the latter caused the shipping lines to cancel an unprecedented level of sailings,” Asad says.

“With a number of services indefinitely suspended, and the remaining hampered by blank sailings (where a vessel supposed to depart in a given week is instead taken out of the rotation), carriers cannot run their full trade networks, which means an increase in inducement calls, cargo roll-overs, and a higher frequency of transhipments. In the long term, carriers cannot bear these costs and as costs accumulate, they will have no option but to pass this on to their customers,” Asad adds.

In the case of India, the country’s container trade has fallen on account of the pandemic disaster and a cocktail of international factors such as slow trade growth and rise in trade tensions. Besides, domestic factors like rural consumer distress, tightening liquidity and a slow-down in key manufacturing sectors are impacting the overall import-export growth.

“Amidst increasing global volatility, a slower local economy, and the USA’s withdrawal of preferential access for certain Indian products, India’s import-export trade is expected to continue to face headwinds in the coming months,” says Steve Felder, Managing Director for Maersk South Asia.

As witnessed, depressed consumer demand, disrupted supply chains, and recessionary trends will hamper India’s container shipping industry at least this year. Economic activity is unlikely to stabilise by the end of the second quarter, but analysts expect the recovery will kick into gear during the second half of the year.

Sailing to new horizons

Since ports handle almost 95% of trade volumes in India, the rising trade has contributed significantly to the country’s cargo traffic. Capacity at major Indian ports reached 1,477 million tonnes in FY19. Adani Port and Special Economic Zone (APSEZ) became the first Indian port operator to handle cargo movement of 200 million tonnes (MT) in 2018-19.

“The number of individual monthly deep-sea vessel arrivals in India have been rising steadily, reaching a peak of 457 in May 2018, and averaging around 420 since the start of 2019. Similarly, the number of deep-sea liner services connecting India has also increased steadily, with roughly 55 services calling Indian ports at its peak in mid-2018. Since then, roughly 50 deep-sea liner services connect to Indian ports every month,” says Asad.

“As shown in figures 1 and 2, India is doing fairly well with regards to the other ports in the region. In terms of the number of individual vessel arrivals in 2019, India recorded more vessel arrivals so far in 2020 than Pakistan and Sri Lanka combined despite the fact that more deep-sea liner services connect India than Pakistan and Sri Lanka,” notes Asad.

However, the port of Mundra in India which has seen the largest increase in its index is still lagging behind Colombo. Colombo which previously benefitted from cabotage restrictions in India had 2,085 individual vessel arrivals in 2019, higher than both Mundra and Nhava Sheva with 1,339 and 1,448, respectively.

Growing demand in the container shipping market has prompted liner shipping company Hapag-Lloyd to launch two new services – the South East India – Europe Express (IEX) and the Middle East-India-Africa Express (MIAX). Both the services, operational since October 2019, closely connects India to North Europe and Africa.

Lars Sorenson, Managing Director at Hapag-Lloyd India says, “There are not many shipping lines that launch two new services in the same month, in the same country. IEX is the first and only direct service from East and South India to Europe. MIAX offers the fastest transit times in the market between India, and Ghana and Nigeria. We also believe there’s need to improve connectivity toward Bangladesh, which currently is quite challenging. A part of that from Europe and West Africa, we will still be able to connect to other markets like Latin America and North America through transhipments.”

Most recently, Abu Dhabi Ports in partnership with feeder service operator, Bengal Tiger Line (BTL) has established a new feeder services company, SAFEEN FEEDERS that aims to facilitate increased connectivity between Abu Dhabi and ports serving the UAE, the broader Gulf region and Indian subcontinent. SAFEEN FEEDERS’ pendulum service will be delivered by three 2,700 TEU vessels (nominal capacity) via the following 21-day rotation calling: Khalifa Port; Jebel Ali Port; Karachi; Kandla; Mundra; Nhava Sheva; Khalifa Port; Jebel Ali Port; Bahrain; Dammam; Jubail; and, Khalifa Port. The service will commence officially with the first departure from Mundra expected to take place on June 30, 2020.

Greater digitalisation to boost India’s shipping sector

The government is fast tracking a plan to implement electronic Bill of Lading (eBL) as it looks at ways to facilitate business continuity by removing hurdles in the trade documentation process in a post-coronavirus world where the current hard-copy based format could pose a huge risk to the smooth flow of export-import goods.

The lockdown restrictions and the need for social distancing to curb the spread of coronavirus have caused severe impediments to EXIM trade in issuance, delivery and dispatch of the hard copy trade documentation required by many departments, authorities and financial institutions.

The bottleneck is attributed to the current manual process wherein the customer has to surrender the original Bill of Lading (BL) at the shipping line’s office, collect paper invoice and pay by cash/ bank transfer to the shipping line, collect paper delivery order issued by the shipping line and submit e-delivery order via PCS1x (Port Community System) at the release point (port/container freight station).

On an average, this would take about 11-and-a-half hours of person to person contact. Through the PCS1x – launched in December 2018 – the shipping ministry has digitised a major part of port related activities including an electronic invoice (e-Invoice), electronic payment (e-Payment) and electronic delivery order (e-DO) for physical release of cargo by custodians.

Expressing the potential value of digitalisation to the industry and Maersk’s evolving role to help boost trade velocity, Felder says, “Shipping and logistics industry has witnessed remarkable change with evolving customer expectations and digital transformation. Digitisation of various parts of the business model plays a vital role in this and will benefit customers in terms of ease of use and user-friendliness. Both the Government and industry players are making attempts to push digitalisation to propel the industry forward. For instance, at Maersk, we are fully engaged in the commercialisation of TradeLens – the digital, open and neutral platform using Blockchain technology to digitise the global container supply chain.”

Agreeing to Felder, Asad explains, “Greater digitalisation may enable the industry to lower operating costs and boost efficiency. This may also benefit container shipping in the longer term if digitalisation can help lower trade barriers.”

Container shipping is a zero-sum demand industry with almost complete inelasticity of demand, as the relative cost of ocean transport, as a share of either total logistics costs or retail value, is practically insignificant. As such, digitalisation alone is unlikely to boost container trade.

Port-led development will drive containerised trade

With the rise in cargo volume and the proliferation of private ports in India, the nominal shipping capacity has increased over the years. India is on the main east-west trade route (Asia-Europe) and the average vessel size calling at Indian ports has also increased. The average vessel size at Indian ports was 3,715 twenty-foot equivalent units (TEUs) in 2011, which strengthened to 6,239 TEUs in 2018 and to 6,685 in 2019.

India’s non-major ports are not regulated by the Tariff Authority for Major Ports (TAMP) and therefore free to determine prices and value propositions in accordance with the market. This gives them a flexibility and an agility over price determination as per the state of the market; something that major ports cannot leverage. Furthermore, owing to their management independence, non-major ports react to customer demands and market imperatives much more swiftly than can the major ports.

With projects like Sagarmala that aims to promote port-led development with a view to reducing logistics cost for EXIM and domestic trade, and wherein the centre would be investing Rs 8.8 lakh crore in more than 605 projects, out of which, 89 projects worth Rs 0.14 lakh crore have been completed and 443 projects worth Rs 4.32 lakh crore are under various stages of implementation and development, container market is set to sail on the back of improved infrastructure.

Besides, relaxation of the Cabotage Law, after more than a year, had seen a great increase in transhipment volumes in India among shipping lines with foreign flags; the Government of India has thus begun to encourage the rapid growth of container traffic.

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