Port sector to witness cargo volume contraction, project delays: ICRA

New Delhi [India], July 4 : Although the port sector has been classified under essential services and remained operational during the lockdown, the adverse impact on domestic economic activity as well as a slowdown in global trade has resulted in a steep contraction in cargo volumes at the major ports.
Similar to the 22 per cent decline in April, May also saw a 22 per cent decline in throughput, according to a research report by rating agency ICRA.
While the decline was across major cargo categories, petroleum, oil and lubricant (POL), thermal coal and container segments witnessed significant contraction, it said.
"The recovery in port sector will be contingent on the pace of recovery of the domestic industrial activity and the global economy," said Ankit Patel, Vice President and Co-Head of ICRA Ratings.
"Further, factors like changes in global supply chain pattern during the recovery phase will also have an impact on the cargo profile."
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 FY2021, said Patel.
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 pickup in domestic economic activity, while for segments like coking coal and containers the recovery may be long drawn.
ICRA expects that while general cargo throughput may witness five to eight per cent contraction for full year 2020-21, the container segment may witness a decline of 12 to 15 per cent during the same period.
K Ravichandran, Senior Vice President and Group Head of ICRA Ratings, said the credit profile of port sector companies is expected to witness pressure in the near to medium term due to the impact of Covid-19 outbreak and the subsequent lockdown imposed.
"Further, 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 promoted by stronger sponsors should have higher financial flexibility to weather this downturn and their debt servicing is unlikely to be materially impacted, said Ravichandran.