27-12-2017

Shipping: Sailing smooth after a slow start

The shipping sector started 2017 on a dull note due to the fallout of demonetisation implemented in November 2016. As it was settling down, the second shocker came in the form of the Goods and Services Tax (GST) beginning July 1.

Both impacted the industry as the movement of goods to international markets slowed considerably.

In places like Chennai, a number of manufacturing units had to scale down their production, affecting both inbound and outbound movements of cargo.

Companies that used the just-in-time production model faced the brunt of the impact due to the two major reforms.

Despite these challenges, shipping rebounded in the second-half with goods manufactured in India hitting markets like the US and Europe on time for Christmas and New Year.

Usually, shipment for the year-end festive season abroad starts in the September quarter, which is peak time for Indian exporters.

Data from Indian Ports Association show that during April-November all major ports collectively reported a 3.46 per cent increase in cargo handling over the same period last year.

They handled 439 million tonnes (mt) as against 424 mt a year back.

Container traffic grew the fastest, at 6.4 per cent, in the first seven months.

Steve Felder, Managing Director, Maersk Line – India, Sri Lanka, Bangladesh, Nepal, Bhutan and Maldives, said as local businesses supported by bold government reforms continue to benefit from the improving atmosphere, “we expect India’s growth to only further boost its position in global trade and competitiveness.

“The country gets yet another reason to celebrate, with its global containerised import-export recording its highest growth in the past year, at a strong 10 per cent in the third quarter.”

India’s GDP has taken an upward turn once again, indicating that the impact of major reforms such as demonetisation and GST are finally stabilising, and the business environment is expected to improve further once concerns around GST refunds are addressed, says a Maersk trade report.

India trades with around 200 countries with the US and Europe being the largest markets. “We are seeing a positive momentum in the December quarter too,” said an official of another leading shipping line.

“The stellar November [export] performance comes on the back of smart recovery in the US economy along with several other key European nations.

“We only have to ensure that momentum is kept up by providing an enabling environment to exporters and removing hurdles like large overdue of GST refunds,” said EEPC India Chairman TS Bhasin in a statement.

Not so rosy
While seaborne trade improved, for ship operators things are not very rosy.

“They are still reeling under low freight rates, resulting in either losses or weak profitability for major players,” said K Ravichandran, Senior Vice-President, ICRA.

While the tanker market appeared to be recovering in 2016, charter rates plunged in 2017 as vessel supply glut accelerated and oil trade movement and storage market underwent significant changes. (Baltic Clean Tanker Index fell nearly 40 per cent this year while the Baltic Dirty Tanker Index was stagnant.)

The dry bulk market recovered somewhat but charter rates are nowhere near the break-even level required for debt servicing or making healthy returns.

On the container liners side, good amount of consolidation among global players resulted in firming up of rates. However, players are still left with many idle ships, he said.

On the demand side, the prospects are good with leading economies showing renewed growth and oil prices firming up. Supply issues will continue to bog down the shipping industry.

Acceleration in demolition rates, postponement of new build deliveries and few more bankruptcies/consolidations will be the key to meaningful revival in charter rates, says Ravichandran.

Future is good
Clarksons Research, a part of Clarksons group, one of the world’s largest ship-broking and integrated shipping services providers says the government has initiated a raft of reforms aimed at enhancing energy independence by raising domestic coal, gas and oil production, with potential implications for shipping.

Industry sources said growth in shipping can be speeded up with faster implementation of infrastructure projects such as Sagarmala, inland waterways, coastal shipping and dedicated freight corridors. A total investment of over $43 billion is planned in Indian ports by 2020.

India getting a positive outlook from both the World Bank and Moody’s will augur well for further investment flow into the country and, in turn, boost the shipping industry.

Source: The Hindu Business Line

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