According to a Platts report, India’s three-week nationwide lockdown to contain the deadly coronavirus pandemic will delay both imports and exports of commodities such as crude, coal, iron ore, vegetable oils and refined energy products as several ports have declared force majeure, while shipping operations across its sprawling coastline are going awry.
What happened?
India was amid a two-week quarantine on all ships when the lockdown was imposed, and it comes at a time when the country was stepping up import of cheaper crude oil, whose prices are at multi-year lows, as well as coal and vegetable oil, in addition to exports of gasoil and jet fuel.
Ports Declare Force Majeure
Close to half a dozen ports including Krishnapatnam, Dhamra, Mundra, Tuna, Gopalpur, Karaikal and Gangavaram have declared force majeure, according to letters issued by the respective port authorities, copies of which were seen by S&P Global Platts.
While India’s federal government has issued an order declaring the transportation of goods by water — including loading and unloading — an essential service, it has also permitted port authorities to declare force majeure. As a result, operations at several ports are badly hit, according to shipping sources.
Dry Bulk Cargo in Jeopardy
Dry bulk operators, who have fixed cargoes on a voyage basis on the South Africa-India route, are in a quandary, a broker said. Some operators had clean fixed ships for nomination and had paid the first hire to owners, but as Indian ports have declared force majeure, they will have to wait without demurrage, he said.
Another broker lamented that a dry bulk charter party agreement, or CPA, for loading at Richards Bay Coal Terminal was canceled after the discharge port in India declared force majeure. The voyage of a ship carrying limestone on the Mina Saqr-Hazira route is also uncertain, industry sources said.
Crude Import Problem
A similar uncertainty looms for India’s crude imports despite the government’s assurances on the contrary.
“Indian crude importers are already seeking storage options for the chartered VLCCs, but not all are likely to get it,” a VLCC broker said.
Owners may reject such options or seek exorbitant rates beyond the budget of the refineries, the broker said.
Currently, demurrage rates for VLCCs in Asia are around $80,000-$90,000/day, an astronomical rate by any standards. According to brokers’ estimates, short term storage of crude on VLCCs will cost between $50,000-$80,000 daily, depending on the age and fuel consumption of the tanker.
Front month ICE Brent futures was down 25 cents/b at $27.51/b at 0830 GMT in Asia on Wednesday.
International crude markers have plunged by as much as 65% from January 20, when commodities markets first began reacting to the outbreak of the coronavirus.
SHIPMENT CANCELLATIONS
Interestingly, while the ports are declaring force majeure, there are no such distress clauses in charter party agreements, or CPAs, for oil tankers. These CPAs only have an option for one to three safe berths for loading and discharge of oil and oil products.
Oil suppliers can declare force majeure if they are unable to provide a cargo, but charterers will either have to pay a cancellation fee to the owners or demurrage or floating storage costs.
There is another dichotomy.
The government has permitted the declaration of force majeure for commercial reasons, but ports have to keep operating under the Essential Services Maintenance Act, a senior executive with a tanker operating company said.
An official from Kandla port said the manufacturing and supply of oil and gas companies fall under essential commodities and do not qualify for lockdown.
To be sure, most of the ports in India which have declared force majeure — except one — are primarily focused on dry bulk cargoes, all of which do not fall under essential commodities.
Dry bulk owners will feel the pinch again as most charterers will invoke the force majeure clause, an executive managing Supramax ships said.
Despite categorical assurances from the government on essential commodities, the reality on the ground is far from normal.
No Workforce at Ports
“There is no workforce coming into these ports. Everything has come to a standstill,” a dry bulk chartering source said. Krishnapatnam port declared force majeure because the police are restricting movement on the roads, leaving trucks and stevedores unable to reach their workplace, another chartering source said.
“We have a ship drifting in Singapore and prefer to keep it in the Pacific due to the uncertainty in mining and port operations, and the volatile bunker fuel prices,” a source with a Capesize owner said.
Can Tanker Cargoes Be Discharged?
While dry bulk shipments will take a beating, discharging essential tanker cargoes is not labor intensive and relevant port terminals are expected to function, but with inordinate delays, market sources said.
Even though tanker CPAs do not provide for force majeure, charterers are playing truant, and flagging the uncertain port operations. “Two [of our] ships are calling at a port that has declared force majeure, and while one receiver is fine with accepting the cargo, the other is refusing to do so,” the same tanker operating executive said.
Indian refineries are currently processing close to 4 million b/d of crude, but as local consumption falls, they will reduce run rates, and delays are not expected to hinder operations in a major way.
“India would have liked to purchase crude now as it is so cheap, but with limited storage space and demand, there is no reason [to do so],” a VLCC broker in Tokyo said.
A shutdown implies no demand for jet fuel, and with only a few automobiles on the roads, this means lesser gasoil and gasoline requirements, the broker added.
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Source: Platts
