India becomes Europe's largest supplier of refined fuels - Exportify Pulse Edition - May 05, 2023

India becomes Europe's largest supplier of refined fuels

A recent report by analytics firm Kpler showed India has become Europe's largest supplier of refined fuels this month while simultaneously buying record amounts of Russian crude.

The reliance of Europe on Indian crude oil products has surged. This increase can be linked with the ban on Russian oil.

The data also showed that Europe's refined fuel imports from India are set to surge above 360,000 barrels a day, edging just ahead of those of Saudi Arabia.

The development is a double-edged sword for the European Union. On the one hand, the EU needs alternative sources of diesel now that it has cut off direct flows from Russia, which was previously its top supplier. However, it ultimately boosts demand for Moscow's barrels, and means extra freight costs.

It also means that more competition for Europe's oil refiners which can't access cheap Russian crude, and it comes amid wider market scrutiny about where the region's diesel imports are coming from.

Russian crude oil arrivals to India are expected to surpass 2 million barrels a day in April, representing almost 44 per cent of the nation's overall oil imports, reported ANI, citing the Kpler data.

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Shrimp exports to swim past $5 billion watermark this fiscal

India’s shrimp sector will see revenue grow ~5% on-year in fiscal 2024, driven by increasing demand from China, which will shore up exports to near lifetime high of ~$5.3 billion seen in fiscal 2022. This growth will largely be volume driven, allowing operating margin to bounce back to ~7.5%, as costs soften. An analysis of 98 shrimp exporters rated by CRISIL Ratings, accounting for two-thirds of the industry revenue, indicates as much.

Better demand will prompt shrimp processors to expand capacities. Debt to be contracted for part-funding such capex and incremental working capital requirements will be comfortably absorbed by the strong balance sheets of the players.

For the record, India, Ecuador, and Vietnam are the top three suppliers of shrimp, while the US, the EU, and China are the top three consumers. India supplies ~70% of its produce to these three regions.

In fiscal 2023, Indian shrimp players got battered on three fronts — first, extreme heat waves reduced produce; second, shortage of containers and higher logistics cost dented exports to the US and EU; and third, exports to China remained muted amid continued lockdowns there.

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? India's horticulture sector holds untapped potential despite challenges

India’s horticulture sector has proven to be more profitable and productive than the agricultural sector and has emerged as a rapidly growing industry. According to the Agricultural and Processed Food Products Export Development Authority (APEDA), India ranks second in fruits and vegetable production in the world after China. The country's advantage lies in being a low-cost producer of fruits and vegetables because of a combination of factors such as favourable agro-climatic conditions, availability of labour, and low input costs. As a result, fruits and vegetables account for almost 90% of the total horticulture production in the country.

Horticulture contributes around 30.4% to the Gross Domestic Product (GDP) while using only 13.1% of the gross cropped area, making it a significant player in India's agricultural growth. In recent years, the total horticulture production in India has even exceeded the total production of food grains, highlighting the potential of the sector. Horticulture not only contributes to the nutritional needs of the country but also creates additional job opportunities in rural areas, expands the range of agricultural activities, and generates higher incomes for farmers.

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Cargo operations between Kolkata and Myanmar starts

Cargo operations between Syama Prasad Mookerjee Port in Kolkata and the Sittwe Port in Rakhine state of Myanmar started.

The ship - MV-ITT LION (V-273) - was flagged off on Thursday by Union Minister of State for Ports, Shipping & Waterways, Shantanu Thakur.

Speaking on the occasion, the Union Minister of Ports, Shipping & Waterways Sarbananda Sonowal said, “Today, we mark the beginning of a new route between India & Myanmar which has been specifically aimed at providing alternate access to International Sea Routes for the landlocked northeast India. Under the visionary leadership of Prime Minister Narendra Modi ji, this is a true reflection of what ‘Act East’ policy can & has achieved. It is under Modi ji’s stewardship, India could realize this immensely important development and thus begin a new age of transportation for Northeast India aimed at its transformational change. The flagged off ship is not just sailing a new route but also carrying hopes and aspirations of a new India; especially for the people of Northeast India.”

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Editor's Note

Is the global supply chain crisis over? NY Fed says yes, stakeholders in India remain skeptical

Ramesh Chand, an Agra-based footwear trader and exporter, is a happier man these days, as there has been a 20-25% decrease in vessel and container dwell time in recent months. But he refutes a claim that the global supply chains have returned to normalcy.

Chand, 40, says there has been an improvement from the phase when everyone was complaining about a “global supply chain crisis” — from 2021 to the second half of 2020. Nevertheless, he adds, they continue to experience significant difficulties at ports. His claims jar with the Federal Reserve Bank of New York’s report in March that global supply chains are back to normal nearly three years after the Covid-19 was declared a pandemic. Industry stakeholders say the Fed claim might not be true in the Indian context.

Is GSCPI relevant?

First, let us examine the reasoning behind the Fed’s assessment. In February, the NY Fed’s Global Supply Chain Pressure Index (GSCPI) fell into the negative territory for the first time since August 2019, showing a decrease in supply chain pressures worldwide. The April 6 data of the index reiterated the downward trend in supply chain pressures, further supporting the notion that global supply chain conditions have mostly returned to normalcy. Some of the pressure that was pushing inflation higher in recent times has also declined, said the Fed. In March, the index fell again, and this time below its historical average. The GSCPI had peaked at 4.32 in December 2021, but has been consistently declining since then.

The index assumes importance because it covers a wide range of parameters to gauge supply chain constraints in the economy. The GSCPI measures global transportation costs by using data from the Baltic Dry Index (transport price of dry bulk materials across major routes); the Harpex (a measure of rates liners pay to charter ships) and air freight cost indices from the US Bureau of Labor Statistics. The GSCPI also includes various supply chain-related components from the Purchasing Managers’ Index (PMI) surveys, focusing on manufacturing firms across seven interconnected economies. This presumably makes it more encompassing.

In a May 2022 press release, the Economic Research Advisor in the New York Fed’s Monetary Policy Research Division, Jan Groen, had said: “The GSCPI is an important product because everyone across the global economy has been impacted by factory shutdowns, mobility restrictions, and widespread lockdowns during the Covid-19 pandemic. Our index provides one bird’s-eye view of potential disruptions as well as regional indicators for analysing trade, inflation, and globalisation trends across the United States, China, Japan, the Euro-area, South Korea, Taiwan and the United Kingdom.”

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Impact in India

Though 80% of the international goods trade is carried by sea — and the percentage is higher for most developing countries — the GSCPI does not seem to match the business sentiments in India.

Vivek Juneja, Founder and Managing Director of integrated logistics firm Varuna Group, says the economic models created by the Federal Reserve cannot adequately account for the distinctive features of India's supply chain ecology. “With numerous layers of intermediaries, unregulated markets, and regional differences, India's supply chain structure is complex and fragmented. It can be challenging to analyse and anticipate supply chain dynamics effectively because of issues like lack of transparency, information asymmetry, infrastructure limitations and regulatory difficulties.” He says that while the Federal Reserve's model may provide valuable insights and guidance, it will have to be supplemented with country-specific data and assumptions before making such a declaration.

Industry players point out that India has 13 major ports and over 200 minor and intermediary ports, and not all of them report complete easing of supply chain pressure.

Kinjal Pande, Chief Executive Officer-India and Indian Sub-Continent at global logistics service provider DB Schenker, says many issues still plague the domestic environment. Infact, the challenges are more significant with regards to certain commodities such as semiconductors — supply chain problems persisted earlier and continue to mar companies now also. “While the Federal Reserve Bank of New York’s announcement is a positive development, it is important to remember that supply chain issues are complex and multifaceted,” she says.

Pande highlights the lack of transparency in the supply chain as a key issue in India. This can create widespread uncertainty and makes it difficult to identify potential disruptions. It becomes a particularly challenging situation when complex global supply chains are involved. “There are a variety of risks that can disrupt the supply chain, including natural disasters, geopolitical tensions and public health crises. Effective risk management requires companies to identify potential risks and develop contingency plans to mitigate their impact. Addressing these issues will require a concerted effort from all stakeholders in the supply chains,” she says.

Some easing visible

There are some who refer to a PMI data to argue that the congestion in global supply chains has gradually decreased as the pandemic impact started getting weaker, and normalisation in demand has aided this. The S&P Global’s India Manufacturing PMI rose to a 3-month high of 56.4 in March 2023 from 55.3 in the previous month, exceeding market forecasts of 55. Output rose at the quickest pace since last December and new order growth was at a 3-month peak, noted S&P, adding that in March ‘23, the export sales accelerated while purchasing activity rose the most since May 2022.

However, CEO and Founder of Container xChange Christian Roeloffs, says using such data to make such an argument may not paint the full picture. The Fed's model uses only six components related to shipping indexes and so it may not be applicable to India's deeply complex and hard-to-monitor supply chain structure. “This composition may not provide a complete picture of the current state of global supply chains also,” says the founder of the online container logistics platform.

Experts point out that local expertise, domain knowledge and context-specific data are critical for developing robust supply chain models. As supply chains are dynamic, a variety of factors can have an impact on them. Traditional economic models do not always account for these issues.

Bhavik Mota, Director-Region Ocean Products of IMEA (Indian Sub-Continent, Middle East and Africa), Maersk, says it is tough to take into account the trade complexity in India. He points to the current situation where exports of some products have fallen, while imports have risen. The drop is seen in the retail and lifestyle segments, perishables such as seafood, and pharmaceuticals, as demand is softening in the western markets. “On the other hand, we see a rise in exports of rice and sugar to the Middle Eastern market and petrochemical exports to the Southeast Asian markets. Exports of industrial goods have also grown,” Mota adds.

A new prism

Roleloffs says it is important to take a closer look at the specific factors affecting each region and industry. “In India’s ports, supply chains may still experience significant stress, and businesses should continue to approach ordering and inventory levels with caution.”

The container terminals at the Nhava Sheva Port, known as India’s busiest public gateway, are facing congestion issues as they are being operated beyond capacity levels, he says, adding that this is because of a significant reduction in capacity at APM Terminals Mumbai, which handles the majority of the import and export shipments at the gateway.

The founder of the Hamburg-based container logistics platform says the firm’s Container Availability Index (CAx) shows that while congestion has eased on most trade lanes, supply chains are still far from normality.

The CAx monitors the import and export movement of full containers at major ports. According to Container Xchange, a CAx value of 0.5 means that the same amount of containers leave and enter a port in a week. A higher reading means more containers are entering the port and a lower reading shows more containers are leaving.

Container rates have been seeing a significant decline, with contract rates moving closer to spot rates. This trend is evident in multiple regions, such as China and Southeast Asia. Despite this decline, the demand for shipping remains weak due to global inflation and restricted demand, leading to a significant drop in freight prices.

Excess containers are causing depots to run on 90% utilisation. “We learn from many customers of Container xChange that the demand for containers is still there, just that the supply is overshooting demand,” says Roeloffs. So, the depots are working at maximum capacity and unable to accept new clients. This is a global phenomenon now.

The oversupply of containers has caused depots to run on almost 90% utilisation in countries like China, say sources. This is making depots less efficient. Depots earn on handling containers and not so much on storage. So, this development is painful for them.

On a stronger footing

According to the April edition of Container xChange Asia Forecaster, Asia's maritime and supply chain industry is experiencing significant disruptions in trade patterns. It suggests that ports in China are already seeing a significant container surplus. “As the spot rates on significant container trade lanes settle down to levels seen before the pandemic, the trend of de-containerisation that prevailed from 2020 to 2022 is now reversing. The container freight rates reached record heights during the peak of the coronavirus pandemic, which resulted in cargo overflowing from containers into minor bulk vessels,” says Roeloffs of Container xChange.

To add to the pain, companies are finding it difficult to draw up optimal supply chain plans because of the volatile and uncertain macroeconomic environment.

There has been a softening of demand in some destinations, such as the UK, says

Allcargo Logistics. Ravi Jakhar, Chief Strategy Officer of the logistics firm, says electronic goods have seen a dip in imports but a considerable rise in exports. “Rice and pharma imports remain strong while readymade garments have seen a decline,” he says. The chief strategy officer says domestic consumption has kept India safe from global recessionary headwinds. Besides, the country’s “efficient container freight stations” near the ports do a great job in tackling congestion and helping evacuate cargo from the ports in a timely manner. His observations resonate with the World Bank's Logistic Performance Index 2023, which said end-to-end supply chain digitalisation is allowing countries, particularly emerging economies like India, to shorten port delays by up to 70% when compared with developed countries. The report noted that the Indian government has made investments in soft and hard infrastructure related to trade.

Traders like Chand, the Agra-based footwear exporter, have been able to capitalise on such developments.

Officials of new-age tech-enabled supply chain firms also say that the country’s supply chain networks are stronger now. Anindya Sundar Nandi, AVP-International Business at NimbusPost, a provider of automated shipping solutions, says, “Indian supply chain networks are quite structured now, thanks to the growing digital push in recent years that has reduced firms’ operational cost and made things more efficient. We now have an optimised supply chain network. Thus, given the segment’s inherent strengths, we should not draw much inference from the NY Fed’s observation.”

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Source: economictimes