21 Apr 2020
The Indian government announced a shocking 21-day lockdown on March 24, which came into effect at midnight on the same day and later extended till May 3. The lockdown is having far-reaching consequences in the shipping industry. India accounts for one-fifth of the world’s population, and it is an essential cog in the transportation of goods by sea. The pandemic adds a major blow to an industry already reeling from a toxic combination of geopolitical tensions, trade restrictions, and natural disasters in 2019.
Supply Chain Disruption
India is the largest trading hub for scrap, wheat, and medicine, to name a few, and the closure of operations in the ports has created an artificial global demand for these products. This lockdown has caused a significant disruption in the global supply chain. As per Windward Maritime Analytics, 543 ships with about 100,000 seafarers were stuck in the middle of their voyage at the time of the announcement. Many global companies that preached lean supply chain management and embraced just in time inventory management to minimize costs have now been left in a precarious situation. They have no buffer in inventory, and this has come back to bite them during this lockdown.
Shipbreaking and Labour Supply
India, along with its neighbouring countries such as Pakistan and Bangladesh, is the hotbed of labour for the ship breaking industry. The current development has brought the ship breaking industry to a grinding halt. There may be a significant decline in the number of labourer that work in the shipbreaking yards. India also is a significant provider of crews for ships, and this could create a spike in costs for shipowners already struggling with poor rates, especially in the dry bulk and container market.
India is a major centre for the delivery of goods for shipping and logistics giants such as Maersk and Hapag-Lloyd. Hapag-Lloyd has cited the drop in the cargo volumes in the Indian ports from February due to the lack of clarity on port turnaround times. With a clog in ports and disturbances in both domestic and internal supply lines, India’s ability to conduct sea trade has been significantly impacted.
In the midst of this uncertainty, the Indian government has instructed all Indian shipping companies not to impose the detention charges for the shipments during this time. This despite the fact that shipping companies are already facing delays in the loading and unloading of goods. Furthermore, certain ports are hitting capacity, and intermediary warehouses outside of ports are near full capacity. This, combined with a labour shortage, has led to further delays and increasing voyage times.
Dwindling Oil Demand
The Indian Oil Corporation has reduced crude oil processing by 30% due to the lack of demand for petroleum products because of the Covid-19 outbreak. Even if India wants to take advantage of historically low crude oil prices, unlike China, its ability to store oil is very limited, given the amount of space it has available. Experts in the S&P Global Platts Analytics are predicting negative growth for India’s oil demand in 2020 due to this lockdown, as shown in the figure below.
The force majeure declared by all the Indian ports with only essential services being operational has disturbed the shipping ecosystem and the supply chain. The government has planned to ease the existing restrictions from April 20. The ports can load and unload goods and cargo across India. The movement of contractual labour can also resume after the approval from the concerned authorities. Based on these announcements, one can hope that the shipping industry can slowly limp back to normalcy.
Bose, K. (2020). Coronavirus pandemic adds a major blow to the struggling shipping industry. Https://www.business-standard.com/article/companies/coronavirus-pandemic-deals-a-major-blow-to-struggling-shipping-industry-120040101890_1.html, 1.
Hellenicshippingnews. (2020). Https://www.hellenicshippingnews.com/global-shipping-industry-rocked-by-india-lockdown/, 1.