India markets closed

Port sector to witness 5-8 pc cargo volume contraction due to COVID-19 in FY21: Report

New Delhi, Jun 29 (PTI) The Indian port sector has been adversely impacted due to the COVID-19 pandemic and the subsequent lockdown, and it is likely to witness 5-8 per cent contraction in cargo volumes, rating agency ICRA said on Monday.

Although the sector has been classified under essential services and has remained operational during the lockdown, the pandemic's adverse impact on domestic economic activity as well as slowdown in global trade have resulted in steep contraction in the cargo volumes at major ports, it said.

'ICRA expects that while general cargo throughput may witness 5-8 per cent contraction for full year 2020-21, the container segment may witness a decline of 12-15 per cent during FY21,' it said.

The rating agency said that similar to the 22 per cent decline in April 2020, May 2020 also saw a 22 per cent decline in throughput, and while the decline was across major cargo categories, segments such as petroleum, oil and lubricant (POL), thermal coal and container witnessed significant contraction.

Ankit Patel, vice-president and co-head at ICRA Ratings, said, 'The recovery in the port sector will be contingent on the pace of recovery of the domestic industrial activity and the global economy.

Further, factors like changes in global supply chain pattern during the recovery phase will also have an impact on the cargo profile, he said adding that of late, anti-China sentiment has also been building up momentum, which could also be a headwind for the trade growth.

The full-year outlook for the sector remains negative, with volume contraction expected in 2020-21, Patel said adding that the recovery among the cargo segments should be relatively better for essential products like POL and thermal coal, which should be in line with lockdown relaxations and the pick-up in domestic economic activity, while for segments like coking coal and containers, the recovery may be long drawn.

ICRA said that due to the invocation of force majeure clause at major ports, the project implementation of Sagarmala and other port projects may witness delays by at least 6-12 months.

Further, since the projects are mainly driven by the private sector, given the steep economic contraction, many discretionary capital expenditure (capex) plans may be further postponed, it said.

The government is looking at a new vision plan for the maritime sector and is in the process of coming out with the Maritime Vision 2030 document, which will factor in some of the issues faced by previous plans and also address the impact of the COVID-19 pandemic.

Regarding the impact on the credit profile of the port sector entities overall, ICRA Ratings Senior Vice-President and Group Head K Ravichandran said, 'The credit profile of port sector companies is expected to witness pressure in the near-to-medium term, due to the impact of the COVID-19 outbreak and the subsequent lockdown imposed.' Further, entities that have recently commenced operations or concluded debt-funded capacity expansions or have concentrated cargo profile like containers could come under severe pressure, he said.

Ravichandran also added that nonetheless, well-diversified players (cargo-wise) and special pupose vehicles (SPVs) promoted by stronger sponsors should have higher financial flexibility to weather this downturn and their debt servicing is unlikely to be materially impacted. PTI NAM HRS