India’s government told all major ports that the coronavirus fight is a valid reason to halt some port operations, leaving traders in disarray about the flow of goods in and out of the world’s seventh-biggest economy.
India’s Ministry of Shipping advised ports they may consider the Covid-19 pandemic as grounds for invoking force majeure, a clause absolving companies from meeting their contractual commitments for reasons beyond their control, according to a letter Tuesday seen by Bloomberg. Several ports and terminals have done so already, while also saying they aim to maintain operations as the government deemed shipping an “essential service.”
The move follows Prime Minister Narendra Modi’s three-week lockdown on India’s 1.3 billion people, the most far-reaching measure by any government amid the pandemic. The declarations set off a wave of confusion, with traders and shipbrokers trying to assess whether the measures would halt operations at ports, which include some of the country’s biggest handlers of oil, liquefied natural gas and shipping containers.
About $829 billion of goods traveled through India’s ports in 2018, according to data compiled by Bloomberg, the 13th most in the world. The country is also the third-biggest importer of crude oil and fourth-biggest of LNG, as well as a major buyer of coal and palm oil and an exporter of sugar. India’s lockdown will mean a “substantial loss of demand” for oil, Vitol Group Chief Executive Office Russell Hardy said earlier Wednesday in a Bloomberg TV interview. Brent crude prices have already fallen 60 percent so far this year.
‘Doing Our Best’
“It doesn’t mean our operations are going to stop. All it does is free us from the commercial liabilities that arise out of disruptions caused by the coronavirus,” said P.L. Haranadh, deputy chairman at Visakhapatnam Port Trust, a government-owned port. “Operations have slowed because several staff may be reluctant to come to work fearing health issues. With limited resources, we’re doing our best to ensure that supplies of essential commodities, such as coal, crude oil and containers are maintained.”
Adani Group, a massive private conglomerate, declared force majeure at all of its 10 ports and terminals as of March 22, Pranav Choudhary, the chief executive officer of Adani’s Dahej and Hazira ports, said by phone. The measures will stay in place until further notice from the government, he said.
India’s lockdown is constraining the movement of people and materials to and from the country’s ports, the group said in a letter to shippers that was seen by Bloomberg. Adani declared the force majeure, saying it won’t be responsible for any charges related to vessel delays, though it also said it would try to continue operating its ports.
Most Indian ports are continuing to work with minimal workforce, a person with knowledge of the matter said, adding that only labor-intensive work is facing delays. Oil operations aren’t affected, according to two shipping company officials. R. Ramachandran, refinery director at Bharat Petroleum Corp. said the company does not foresee any problems importing and exporting petroleum products or berthing ships except for a few protocols that have to be followed.
India’s Gail India Ltd. declared force majeure on some prompt shipments of LNG due to staffing issues at terminals, but also acute demand restraints caused by the coronavirus, according to people with knowledge of the matter. Still, traders surveyed by Bloomberg said that LNG imports into the country remain largely unaffected for now, with terminals operating and shipments are more likely to be delayed than canceled.
Shipping data is signaling that ports may already be backed up. The number of vessels anchored at sea off India has risen 22% to 78 from a week earlier, according to tracking data compiled by Bloomberg. Chemical and oil product tankers accounted for most of that increase.
“Ports will need to apply their mind before wanting to invoke such clauses,” said Anil Devli, the chief executive officer of the Indian National Shipowners’ Association. “Any unilateral declaration of force majeure could have huge commercial repercussions for India and its trade, and that would be unhealthy.”