Read how novel coronavirus will affect Indian shipping and ports negatively

February 20, 2020: The credit rating agency, ICRA (formerly Investment Information and Credit Rating Agency of India) said on Wednesday in a release that Indian industries like chemicals, dyes and pigments, pharmaceuticals, textiles, electronic and auto will see supply chain troubles, along with negative impacts on Indian shipping industry and ports, due to stalled productions in Chinese factories with the outbreak of coronavirus.

China has been a major driver of global shipping trade in the tanker, dry bulk and container segments.

The shutdown of industries in China is 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 Indian ports, K. Ravichandran, senior VP and group head, ICRA Ratings, 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. Ports that have 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 on the duration of restriction in China’s industrial activities due to Covid-19 and the pace of subsequent recovery.”

Reasons for increasing tanker rates
The tanker rates had witnessed a spike in Q4 CY2019 due to several factors, including sanctions on the Chinese shipping company, COSCO 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.

Reasons for fluctuations in dry bulk rates
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.

Reasons for muted container segment
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 coronavirus outbreak has had an adverse impact on all the above sectors.

K. Ravichandran 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. 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.”