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EXIM container trade volumes drop during this year; Import growth to recover as effects of demonetisation fade away

India’s EXIM container trade volumes have gone down to 7 per cent in the first quarter of 2017 as compared to 10 per cent in the same period last year. The slowdown has been due to a short-term decline in imports.

While the container export volumes have registered a growth of 8 per cent in Q1, same as the year before, import growth volumes declined to 5 per cent against 13 per cent in Q1 2016, says a report by A.P. Moller-Maersk.

This dip in import growth was due to piling up of inventory in the market post-demonetisation and lack of clarity around Goods and Services Tax (GST).

It is noteworthy that despite the looming threat of the current geopolitical environment worldwide on global trade, India has been able to maintain its growth trajectory," says Mr Franck Dedenis, Head of West Central Asia Trades, Maersk Line.

The country’s growth performance has indeed been stronger than global trade, which in the past two quarters has increased to around 4-5 per cent, driven by improvements in exports to regions such as the Far East, North America and Latin America.

Exports from India outpace imports

North America, Saudi Arabia and emerging economies in Latin America, Africa and Asia are leading India’s export growth.

Highest growth in export volumes has come from India’s Subcontinent neighbour, Sri Lanka, which has propelled demand for metals, stones, sulphur and plaster for ongoing infrastructure development projects.

Though the economy of North America is growing the slowest since the last three years, trade with the continent has grown 5 per cent, driven by demand for fish, plastic and rubber, metals, textiles, apparel and accessories.

 Demand for salt, sulphur, earths, stone and plaster has grown by a whopping 400 per cent. Contrary to this, pharmaceutical exports have registered negative growth.

Trade with Europe remained flat

Exports to countries like Algeria, Italy and Spain increased by 48 per cent, 10 per cent and 9 per cent, respectively. Algeria saw a dramatic rise in beef and auto imports from India, which led to this substantial increase.

However, demand for Indian garments, fruit and nuts dipped sharply in major markets like the United Kingdom, Germany and France.

The decrease in exports to these countries, though, has been offset by an increase in demand from Russia for vehicles and metals and from Denmark for appliances and kitchenware.

Exports to Turkey and Egypt saw negative growth in the wake of a series of terrorist attacks and domestic political turmoil in the former and ongoing currency issues in the latter.

Traditionally, the United Kingdom is India’s largest export market in the region. However, a spending binge in the holiday season last year followed by rising prices post-Brexit and news of France potentially cutting off ties with EU have affected consumerism negatively in the UK, which has resulted in this drop. Additionally, the appreciation of the rupee against the euro has adversely impacted India’s exports to the EU bloc," Mr Dedenis said.

Imports from Europe, however, has remained flat as against 8 per cent growth in 2016.

Commodities that saw growth in import volumes include automobiles and wood pulp from Germany, chemicals from Belgium, marble and other stones from Italy, appliances and kitchenware from Turkey, and finally papers, plastics and rubber from Spain.

On the other hand, paper and iron/steel scrap from the United Kingdom, metals and chemicals from Russia and metal scrap from the Netherlands have registered negative growth.

Adds Mr Dedenis: "The time taken to revive the economy after demonetisation in Q4 of 2016 and the uncertainty around implications of GST in Q1 2017 led to conservative buying patterns in India, which are the main reasons for the drop in demand and hence drop in imports."

Beef, aiming for the top

Indian refrigerated cargo has been growing consistently with the demand for commodities like vegetables, meats and seafood on the rise. In fact, India has consolidated its top spot as the largest exporter of beef to Vietnam. "Although Vietnam is the biggest buyer of Indian beef, it is just a destination market, and from Vietnam Indian beef finds its way into China where the consumption is very high. Lower prices, along with the proximity to key markets in South-East Asia and West Asia, gives a huge competitive edge to Indian buffalo meat exports," avers Mr Dedenis. He adds, "To stay ahead in technological innovation in refrigerated containers, Maersk Line recently became the first shipper to invest in Star Cool reefers by Maersk Container Industry (MCI), which will help power cold chain transparency and raise the Industry standards in the segment."

Impact of demonetisation and upcoming GST rollout on imports

Imports of products such as furniture, electronics and automobiles from China, the United States and Germany have been hit by negative growth owing to evolving economic reforms.

These commodities are cash sensitive and have been impacted by demonetisation, effects of which were felt in the first quarter of the year. In fact, in some cases inventory from the previous quarter also trickled into the first quarter of this year. In addition to that, with GST rollout around the corner, a lot of people have taken a wait and watch approach towards making high-end purchases on certain consumer products," points out Mr Dedenis.

Imports from North America registered a negative growth of 9 per cent as compared to 29 per cent growth in the same period last year.

Domestic demand for wastepaper, which is a fast moving commodity, declined mainly due to demonetisation.

 However, imports of textiles and apparel, fruits, nuts and plastics remained strong and saw growth.

2017 outlook

Domestic reforms have slowed down India’s trade momentarily, thereby weakening domestic demand. However, A.P. Moller-Maersk expects Indian ex-im trade to pick up pace in the next quarter.

Policies such as GST are taking final shape and the global economic outlook for 2017 is offering favourable prospects. According to the World Trade Organization (WTO), the value of goods shipped around the globe is expected to grow by around 2-4 per cent in 2017, up from just 1-3 per cent in 2016.

India’s ex-im trade forecast remains strong and we expect growth in imports in Q2 as the effects of demonetisation are expected to fade away. The country is also expected to benefit from the predicted improvement in global trade. But these prospects come with a caveat; the recovery will be much slower if protectionist policies and restrictions on imports persist," says Mr Dedenis.

Container trade growth signifies an overall improvement in the global economy as compared to 2016. In the past two quarters, global demand picked up by around 4-5 per cent, driven by improvements in most regions, especially the Far East, North America and Latin America imports.

A.P. Moller-Maersk expects global container trade to grow by 2-4 per cent in 2017. Imports in Asia and the US will lead the trend, supported by a reversion of the past year’s developments in Latin America and later in Africa, according to the report.


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