COVID-19 Could Impact Indian Shipping

India’s shipping and ports industry is likely to be negatively impacted by the outbreak of coronavirus (COVID-19) across China and South-East Asia, according to credit rating agency ICRA.

China has been a major driver of global shipping trade in tanker, dry bulk and container segments. The tanker rates had witnessed a spike in Q4 CY2019 due to several factors, including supply correction arising from sanctions on a major Chinese company and Iranian vessels, prospects of US-China trade agreement and elevated demand for VLCCs by trading companies for storing VLSFO in anticipation of a sharp demand growth due to implementation of IMO 2020.

On the other hand, the dry bulk rates, which had witnessed a steep contraction in Q1 CY2019, witnessed some improvement in Q2 and Q3 of CY2019, driven by some uptick in China bound trade, but again witnessed moderation during Q4 CY2019, driven by factors like disruption in iron ore supply from Brazil and the impact of US-China trade disputes.

The container vessel segment also remained muted in CY2019 due to a cyclical slowdown in global demand and impact of US-China trade issues. While recovery/sustenance of rates in the shipping segments in CY2020 was contingent on improvement in global trade environment led by some agreement on US-China trade issues and impact of IMO 2020 on tanker segments, the corona virus outbreak has had an adverse impact on all the above sectors.

Regarding the impact on the shipping sector, Mr. K. Ravichandran, Senior VP and Group Head, ICRA Ratings, said: “While, the tanker segment witnessed moderation from the highs witnessed in Q4 CY2019, the Baltic Dry Index and Baltic Capesize Index witnessed a steep decline with the Capesize Index turning negative for the first time on account of the impact of the corona virus outbreak on the industrial activity in China."

He added: "The impact was also a result of the vessels getting stranded at Chinese ports, which were being diverted to other locations or were waiting in the sea, unable to deliver cargo to China. On the whole, the impact of Covid-19 is a negative for the shipping sector and any recovery will be dependent on the demand recovery in the Chinese industrial segment, following the abatement of Covid-19.”

Further, the shutdown of industries in China is a negative for the Indian exim cargo movement as India has significant trade linkages with China by way of import and export of raw materials and finished goods. Further, with the movement of containers being affected by the cancellation of calls, there could be a disruption in the container cargo movement at Indian ports.

Regarding the impact on ports, K. Ravichandran, said: “Many industries like chemicals, dyes and pigments, pharmaceuticals, textiles, electronics, auto etc. could witness short-term supply disruptions due to a production shutdown in China. In turn, the reduced economic activity could result in a slowdown in bulk consumption and indirectly also affect bulk imports like coal, crude and other commodities."

Ravichandran added: "Ports that have a significant exposure to the affected cargo categories could see an impact on their cargo volumes in the near term. The extent of the impact will be dependent of the duration of restriction in China’s industrial activities due to Covid-19 and the pace of subsequent recovery.”