In Deep Waters

The outbreak of Covid-19 has presented unparalleled challenges to the maritime sector. The pandemic struck at a time when maritime trade was already experiencing a downturn due to disruptions in international trade (China-US trade war) and poor domestic performance. After the outbreak, a number of berth and terminal operators invoked the force majeure clause. The major ports missed their targeted traffic volumes during 2019-20 by about 20 million tonnes (mt). Vessels arriving from the ports in impacted countries that had been identified for mandatory quarantine and travel bans were asked to take additional precautionary measures, adding to dwell time.

While the nationwide lockdown to stem the spread of Covid-19 brought all the sectors to a standstill, the ports and shipping sector, deemed an essential one, was allowed to operate on a skeletal basis. The impact ranged from reduced cargo operations to derailed project execution and revenue losses due to limited activity. Net, net, the outbreak has certainly cast a shadow over the much anticipated mild maritime recovery. While it is too early to draw specific conclusions on the extent of the impact, due to the risk of a second wave, tighter or prolonged lockdowns (in some states) and physical distancing norms across the country, the maritime industry is expected to remain under pressure, at least for the coming fiscal year.

Government support

The central government announced a plethora of relief measures to reduce the impact of the crisis. Right at the onset of the pandemic, the Ministry of Shipping (MoS) unveiled a relief package allowing firms running cargo terminals at major ports on a public-private partnership (PPP) basis to defer their revenue share, royalty and equipment hire charges without any interest for the April-June period. The relief package was introduced to ease the burden on PPP operators, port users and other stakeholders hit by the crisis. The other initiatives taken by the MoS, along with the port authorities, are extending free storage time, not imposing container detention charges on export-import (exim) shipments or any new or additional charge, waiving of the late fee, providing exemptions or remissions on penalties during the lockdown period, reducing pilotage and berth hire charges, and urging importers to clear their consignments at the earliest so that the customs areas remain unclogged, among others. The ministry also issued specific guidelines with regard to cost escalations for PPP projects on account of the pandemic.

Dwindling traffic numbers

Cargo throughput at ports has been severely impacted by the virus outbreak. The major ports handled about 705 mt of traffic during 2019-20, less than their annual target of 725 mt. Further, during April-July 2020, traffic at the major ports declined by 18 per cent from 236 mt to 193 mt in the corresponding period of 2019-20. In terms of growth, all the major ports registered a decline during April-July 2020, except for Mormugao. The ports that witnessed the maximum decline are Kamarajar (36 per cent), Cochin (33 per cent), Chennai (33 per cent), the Jawaharlal Nehru Port Trust (JNPT) (28 per cent) and Kolkata (26 per cent).

Commodity-wise, while there was a negative impact on all cargo categories, containers have been the worst affected. Cargo handling through containers involves the use of multiple modes of transport, and with disruptions in the logistics value chain, container traffic bore the brunt. In terms of numbers, container traffic witnessed a decline of 25.67 per cent during April-July 2020 over April-July 2019, declining from 50.86 mt to 37.81 mt. The movement of other commodities deemed essential, such as petroleum, oil and lubricants, foodgrains, fertilisers and, to some extent, coal, was relatively less affected.

Ports such as Dhamra, Karaikal, Gopalpur, Gangavaram and Krishnapatnam on the east coast as well as Adani-Mundra, Hazira, Angre and all 44 ports under the Gujarat Maritime Board on the west coast declared force majeure, as most of them are involved in end-to-end contract management and their operations were badly disrupted for a variety of reasons. Meanwhile, the Kolkata Port Trust has also declared force majeure at its Haldia Dock Complex, becoming the first state-owned major port trust to invoke the clause in the wake of the coronavirus outbreak.

Derailed project execution

Construction activity came to a complete halt in April 2020. Even after partial lifting of the lockdown restrictions, displacement of the migrant labour force, shortages of raw material and equipment, and disruptions in the supply chain continue to impede the pace of project implementation. Further, since the golden period of construction (February to mid-June) has already been lost and the second quarter of the current fiscal year is expected to be impacted due to the monsoons, projects under construction are likely to witness a delay of at least six months to a year.

As per India Infrastructure Research, Maharashtra, Andhra Pradesh, Gujarat and Odisha together account for 76 per cent of the total investment envisaged for upcoming projects at ports (based on a project pipeline of 228 projects involving an investment of Rs 4.4 trillion). Of this, around 33 per cent of the investment is envisaged in Maharashtra. Being the state that has been the worst hit by Covid-19, its port projects are expected to face the maximum delays.

One of the flagship projects that has been among the Covid-19 casualties is the ongoing transshipment terminal project at Vizhinjam. The project has been impacted due to lockdown restrictions, limited working hours, manpower shortages and disruptions in the supply chain. The second container terminal at Kamarajar port and the floating storage regasification unit at Jaigarh port have also been sorely impacted due to the prevailing conditions.

While under-construction projects are facing delays, the scenario is grim for under-bidding projects and those in the pipeline as well. Bids are being extended and port authorities are hardly floating any new bids. Ports have extended bid due dates for a number of projects, primarily due to the lack of adequate response from players amidst the ongoing crisis. India Infrastructure Research tracked 13 projects for which bid due dates have been extended due to disruptions caused by the pandemic. According to the analysis, so far, bid extension has varied from 15 days to 1.5 months. On average, projects in the bidding stage have recorded a delay of approximately one month.

Turning to technology

The implications of the virus outbreak have pushed the port sector to look at technology solutions for better facilitating its operations. Technologies that were supposed to be deployed sequentially are now being implemented in parallel. The country’s largest container handling major port, JNPT approved the issuance of e-passes, wherein people can apply for passes online with the help of a cloud-based application. The port trust also introduced the e-office concept. This helped in minimising physical contact with office files by transferring all the files to the e-office. Along similar lines, the Mumbai Port Trust (MbPT) also implemented an e-office system allowing staff to access it online for administrative approvals. The MbPT is also taking steps to make the bill of lading available online (using blockchain technology) to allow importers and exporters to take delivery of goods without any manual intervention.

The customs authorities too were prompt in issuing guidelines to deal with the pandemic. From clearing goods on the basis of acceptance of electronic country of origin certificates instead of physical certificates to electronic communication of PDF copies of bills of entry, issuance of e-gate passes, etc., the customs authorities underwent a major transformation to adapt to the changed requirements, leaving no stone unturned to reduce the pandemic’s impact on clearances.

What does the future look like?

Covid-19 has affected the Indian port sector in multiple ways – limited workforce availability, unclaimed import cargo lying at ports, restrictions on vessels calling at ports, delays due to compliance related to sanitation, blank container sailings, etc. Despite the numerous initiatives taken by the government, traffic volumes were impacted due to skeletal operations. Further, global headwinds and disruptions in the supply chain are expected to severely impact exim traffic at ports.

According to industry experts, all cargo categories are likely to see a negative impact. Cargo handling at Indian ports could fall to 10-12 per cent of its capacity during 2020-21. The container segment is expected to be the worst affected as it entails multiple modes of transport, and thus greater involvement of the logistics supply chain. The lockdown-induced decline in container trade is expected to result in a contraction of 13-16 per cent in container traffic for Indian ports during 2020-21. Further, port companies with a single cargo profile are likely to be more affected than those with diversified cargo profiles. Efficiency levels at ports have also been severely affected. The average turnaround time has increased from 3 days to 12 days, and this has led to some cargo owners suspending operations and detaining containers. According to ICRA, while the 2020-21 outlook for the port sector looks negative, it has started witnessing some early signs of recovery with a decline in the rate of cargo contraction. However, the pace of recovery of the port sector is expected to remain slow as most of the industries will continue to reel under the impact of the lockdown-induced slowdown.

Garima Arora and Deeksha Soni

 

 

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