Analyst corner: Truck profitability under stress; fuel costs to stay above average

Core exports rose 2.5% y-o-y in Nov ’19 vs 1.4% in Oct ’19.

By Nomura AEJ

Core EXIM trade (ex-oil and ex-gold) fell (-5.6% y-o-y in November 2019) to its lowest levels since Nov ’17, led by weak core imports (-12% y-o-y in Nov ’19), which declined to their lowest levels since Aug ’17. Core exports rose 2.5% y-o-y in Nov ’19 vs 1.4% in Oct ’19.

Major port volumes remained flat y-o-y in Nov ’19 vs. 5.4% y-o-y decline in Oct ’19. The weakness was led largely by coal volumes (-22% y-o-y in Nov ’19). Ex-coal, major port volumes rose 6.5% y-o-y vs. 5.9% in Oct ’19.

Container volumes rose 8% y-o-y in Nov ’19 vs 12% y-o-y decline in Oct ’19 (in TEU terms). However, volumes fell 5.4% y-o-y in tonnage terms in Nov ’19 vs flat in Oct ’19, indicating lower weight containers in Nov ’19. Private port volumes in Nov ’19 fell sequentially from Oct ’19 levels, rising 5% y-o-y over the low base of Nov ’18: Among key private ports, Dahej was the only port witnessing a sequential rise in volumes over Sep-Oct ’19 levels, Mundra volumes remained stable m-o-m, while Hazira volumes fell to six-month lows. Pipavav volumes fell 1% y-o-y in Nov ’19 vs +35% growth in Oct ’19. However, this is over the high base of Nov ’18. Railways gain market share; despite a decline in port container volumes, rail containers are still on a growth trajectory.

EXIM rail container volumes rose 9.3% y-o-y against a 5% y-o-y decline in port container volumes, implying railways gained market share from roads. Rail movements for all key commodities including iron ore, coal as well as cement rose sequentially in Nov ’19 vs Sep-Oct 2019 levels.

Western DFC continues to witness strong execution with the key Rewari- Iqbalgarh now more than 90% physically complete. We estimate that key ports of Mundra, Kandla and Pipavav will be connected to DFC by 1QFY21. This should not only benefit ports but also Concor (CCRI IN, Buy) which should witness volume gains from H2 FY21 as rail container market share, rises (26% at present), in our view.

Truck freight rates remain weak; truck profitability is under pressure as fuel costs as a share of freight continue to remain above the long-term average. The rise in diesel prices could lead to a hike in truck freight rates.