Weak Logistics Indicators Reinforce Persistence Of Growth Slowdown

A variety of different high-frequency indicators, from sales and production of consumer goods to a recent weakness in output of capital goods, have reinforced a growth slowdown in the Indian economy.

Trends from the logistics industry, which map the transportation of goods across the country, only add to this list, pointing to subdued economic activity.

India’s gross domestic product growth fell to a 20-quarter low of 5.8 percent in the January-March 2019 period. Part of the fall, particularly in investment, was seen as temporary due to election-related uncertainties. However, it is unclear if there has been any pick-up in economic momentum since then.

Freight volumes by rail, road and shipping remained weak in the April-June period, suggesting that the slowdown did not lift even in the first quarter of the year. “A slowdown in the logistics sector is a clear lead indicator of a slowdown in trade and will reflect in contribution of trade in economic activity,” said Rajni Thakur, economist at RBL Bank.

Rail Tonnage Growth Falls

Railway tonnage in June 2019 grew by 1.97 percent on an annual basis, the lowest in at least the last one year, according to data put out by the Indian Railways. This compared to a growth rate of 5.08 percent in June last year.

“Since Nov. 18, rail freight volume growth has lost steam and the trend continued in June as well—mere 2 percent year-on-year growth. Further, after a spike in May, container rail volumes grew a mere 3.4 percent year-on-year in June,” said Edelweiss Research in a note dated July 9.

Container volumes are closely linked with volume trends at ports and the slow growth in June is again a result of sluggish ports volume growth, said Edelweiss.

Port Cargo Volumes Contract

Cargo volumes at major ports contracted for a second month in June, shows data from the Indian Ports Association. Volumes fell 0.5 percent year-on-year in May and June.

According to Edelweiss, cargo volumes across all major ports remained weak. The Mumbai port saw stagnant volumes, while Jawaharlal Nehru Port Trust saw 2 percent growth and the Vishakhapatnam port saw 5 percent growth. The Chennai port saw the sharpest fall in cargo volumes at 15 percent.

“Key trade growth indicators remained soft in June 19, led by sluggish industrial activity and weak underlying demand in the economy,” said BoB Capital Markets in a note on July 16, pointing to underlying reason behind weakness in the logistics sector.

In the case of traffic at key ports, weakness in international trade, along with the domestic economic slowdown, impacts volumes. Merchandise exports fell by 1.69 percent in the April-June quarter, while imports fell 0.29 percent over last year.

Truck Rentals

Truck services, which see the highest freight volumes among all logistics segments, have also been hit hard. Volume data for freight carried by road is not available but the fall in rental rates suggests weak demand.

Rental rates for a full truck load began to fall from November last year, falling between 11 to 15.6 percent across different routes until May 2019, according to data from the Indian Foundation of Transport Research and Training.

Rentals rose by about 2.5 percent month-on-month in June because of higher diesel prices. However, this growth could not be sustained in July, with rental rates remaining range-bound in July, said IFTRT in a note dated July 3, 2019.

It added that arrivals of fruits and vegetables dropped by 15-20 percent in June, while leading industrial hubs released about 25 percent less cargo. Overall, a weak economic situation and a sharp drop in consumer spending in metros and rural markets led to truckers virtually pulling down shutters and restricted truck fleet replacement and expansion during June 2019, the note said.

Thakur of RBL Bank said that while weakness in logistics indicators persists for now, there could be some improvement.

“Though one will have to wait and watch, government induced activity may help push up logistics over the next two months with positive signals coming in from the cement and steel industries,” she said.