India Ratings and Research (Ind-Ra) has published the February 2021 edition of its credit news digest on India’s logistics sector. It highlights the key volume and realisation trends across three logistics sub-sectors - sea logistics (global and domestic), surface logistics (rail and road) and air logistics (passenger and freight).
Port Volumes Growth Moderates, Suez Canal Blockage may have Temporary Impact: Overall volumes continued grew 2% yoy in February 2021, backed by robust growth in iron ore & containers (up 21% and 16% yoy, respectively). The overall volume declined 7% yoy in 11MFY21, much lower than earlier anticipated 12%-14%. Most of the volume decline was from major ports, with non-major ports showing resilient volume growth.
During February 2021, petroleum oil and lubricants (POL) volumes fell 9% yoy, while fertiliser and thermal coal volumes declined by 21% yoy and 17% yoy, respectively. The decline in the volume was partially offset by growth of iron ore (up 21% yoy), containers (16% yoy) and other commodities (23% yoy). The 193km waterway Suez Canal connecting Asia and Europe in which the container ship 'Ever Given' got twisted diagonally, remains important for global trade as about 12% of the world trade passes through this canal. Also, as the canal was cleared in a short time frame, Ind-Ra believes this is unlikely to create any further pressure on the shipping freight rates.
Airlines Face Fresh Challenge amid Rising Covid Cases in metro cities: As the fresh wave of COVID cases is gripping key metro cities, Ind-Ra believes challenges for the airlines sector have risen substantially. The top six metros account for a substantial proportion of the total domestic passenger traffic in the country. During January to mid-April 2021, covid cases in key metros have risen multifold. The sharp spike in cases is leading to fresh restrictions on travel, economic and business activities in the form of lockdowns or reduced market hours.
Ind-Ra believes both corporate and leisure travel, which was showing the first signs of revival, could receive a strong temporary setback till active cases subside to manageable levels. The top six metros account for 52%-56% of the total domestic passenger traffic in India, with Mumbai and Pune together accounting for 12%-15% of the total passenger traffic. While the central government is unlikely to close down airline operations or impose severe restrictions, passenger enthusiasm to undertake travel will be adversely impacted. This is partly offset by continued progress on mass vaccinations with around 90 million doses (first dose: 79 million, second dose: 11 million) of the vaccine already administered by 7 April 2021. However, even after accounting for the planned ramp-up in India’s COVID vaccine production and delivery capabilities, substantial coverage is likely a few quarters away. Challenges for airlines are aggravated by a continued rise of crude oil prices with Brent crude breaching the USD63/bbl mark recently. Note that fuel prices form around 39% of operating expenses for key airlines in India.
Surface Transport: Freight Rates Rise amid Increasing Diesel Rates: Truck freight rates witnessed a healthy increase during February 2021 in line with the increase in diesel prices. Average freight rates increased by over 6% in February 2021 similar to the increase in diesel prices witnessed during the month. Diesel prices increased to about Rs 81.5/litre from about Rs 76.5/litre (an increase of 6%). E-way bill generation increased 12% yoy to 64 million in February 2021 (February 2020: 57 million) while it increased marginally by 2% mom (January 2021: 63 million). Diesel consumption declined 5% yoy in February 2021 (January 2021: down 2% yoy) though increased 7% mom in February 2021 (January 2021: down 5% mom). Railway volumes grew by 5.5% during February 2021 while it remained at a similar level on yoy basis during April 2020-February 2021. Railway volume growth moderated from the growth of 8.3% yoy in January 2021 and 8.7% yoy in December 2020.
The market share of rail stood at 23% in February 2021 (January 2021: 26%) for export containers while it increased substantially for import containers to 18% during February 2021 from 6% in January 2021. Better import volumes and the waiver of haulage charges for moving empty containers by Indian Railways are likely to have resulted in the market share gains for import containers.
