Sagarmala projects to delay 6-12 months; container volume to decline 12-15%: ICRA

June 30, 2020: The credit rating agency ICRA forecasts that the Indian port sector is likely to witness 5-8 percent contraction of cargo volumes in FY2020-21 and particularly the container segment may witness a decline of 12-15 percent due to the adverse impacts of the Covid-19 pandemic and the subsequent lockdown. 

Update: 2020-06-30 04:10 GMT
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.

June 30, 2020: The credit rating agency ICRA forecasts that the Indian port sector is likely to witness 5-8 percent contraction of cargo volumes in FY2020-21 and particularly the container segment may witness a decline of 12-15 percent due to the adverse impacts of the Covid-19 pandemic and the subsequent lockdown. 

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

According to ICRA, the pandemic negatively affected the domestic economic activity, caused a slowdown in global trade and resulted in a steep contraction in the cargo volumes at major ports.

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

The full-year outlook for the sector remains negative, with volume contraction expected in 2020-21, while 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.

Factors: Industrial activity, new patterns & China
Ankit Patel, vice-president and co-head, 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. Changes in global supply chain pattern during the recovery phase will also have an impact on the cargo profile while anti-China sentiment could be a headwind for the trade growth."

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.

Risk among port sector companies
K Ravichandran, senior vice-president and group head, ICRA,  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."

"Entities that have recently started operations or concluded debt-funded capacity expansions or have concentrated cargo profile like containers could come under severe pressure. Nonetheless, well-diversified players (cargo-wise) and special purpose vehicles (SPVs) promoted by stronger sponsors should have the higher financial flexibility to weather this downturn and their debt servicing is unlikely to be materially impacted," he said. 

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