Back to pre-COVID levels of cargo volumes

Cargo volumes in the Indian port sector are likely to return to pre-COVID levels in FY2022, with volumes expected to exceed FY2020 according to Sai Krishna, Assistant VP and Sector-Head, Corporate Ratings, ICRA Limited; and Ravish Mehta, Senior Analyst, ICRA Limited.

Priyanshi Bana

The cargo volumes at Indian ports (both major and non-major) had grown at around 6-7 per cent per annum during FY2017 to FY2019 but witnessed slowdown with only 3 per cent growth in FY2020 due to subdued growth in EXIM trade and impact of COVID-19 in Q4 FY2020. During FY2021, the volumes had declined by ~14 per cent during H1 FY2021, following the strict lockdown measures imposed which had resulted in severe economic contraction.

However, with the easing of containment measures there was recovery in H2 FY2021 with y-o-y growth of 3 per cent, and the full year volume declined by only 5 per cent. The recovery has continued during 5M FY2022, with volumes nearly at pre-COVID levels despite the impact of second wave of COVID-19. ICRA expects the full year growth to be ~7-10 per cent on y-o-y basis and ~1-4 per cent compared to FY2020 driven by sustained pickup in economic activity during the second half of FY2022.

Petroleum, oil, and lubricant (POL) accounts for 34-36 per cent (average share from FY16-20) of cargo in Indian ports, followed by coal (23-28 per cent) and containers (16-19 per cent), with remaining key cargo segments being iron ore, fertiliser and fertiliser raw material (FRM), agri-products, and cement and project cargo, accounting for the remaining key cargo segments. Both the POL and coal segments had witnessed contraction in FY2021, however the container segment saw a sharp recovery in H2 FY2021, leading to a 1 per cent increase in volume for the year.

Further, segments like FRM, and fertilisers and iron ore had also witnessed growth in FY2021. During 5M FY2022, the y-o-y cargo growth at Indian ports (both major and non-major ports) continued to witness recovery led by all major cargo segments, except FRM and fertilisers; however, while volumes of segments like containers, iron ore and other miscellaneous cargo have exceeded pre-COVID levels of 5M FY2020, POL and coal segments remain laggards.

The recovery in the volumes have been driven by increased exports in certain segments like containers, iron ore, etc., while imports have been impacted due to subdued demand for thermal coal and POL due to the disruption caused by COVID-19. However, the
demand for these segments are also expected to improve with pick-up in economic activitie.

Despite the liquidity support measures provided by the Ministry of Shipping and the RBI, the cash flows of some entities in the port sector that had recently begun operations or completed debt-funded capacity expansions came under strain in FY2021, due to lower cargo movement. However, as expected, the SPVs promoted by stronger sponsors have had the financial flexibility to weather the downturn and their debt servicing has not been materially impacted. Going forward, with healthy volume growth expected for FY2022, the financial performance of
the port sector entities is expected to improve as they will benefit from the operating leverage.

The Indian port sector has also been witnessing consolidation in the last few years, with acquisition of ports and port assets by larger players. The trend is expected to continue as some of the weaker entities or strategic standalone assets get acquired by stronger and larger players. The sector is also expected to benefit from policy measures like implementation of Major Ports Act 2021 and will get traction from infrastructure projects like Sagarmala and Dedicated Freight Corridor, in the medium to long term.