Shares of Container Corporation of India Ltd (Concor) have lost about 3% so far this week after it reported a decline in volumes in the June quarter.

Total volumes measured in twenty foot equivalent units fell 0.9% in the first quarter of FY20, the company said in a release ahead of its quarterly results. The reasons behind the weak performance will emerge when Concor announces the results on 31 July.

Clearly, the Q1 volume data does not bode well for earnings. It is in variance with the company’s performance in FY19 and the Street’s expectations for the current fiscal year.

Concor has guided for a 10-12% volume growth for FY20.

“Based on Indian Railways data, for Concor, both the market and us were expecting about 16-18% YoY (Year-on-Year) topline growth (6-7% volume, plus 9-10% pricing) in Q1FY20. However, this data released by Concor now means that topline growth will be more like 9-10%," Edelweiss Securities Ltd said in a note.

The fall in volume for Concor is in contradiction to the 5.5% expansion in volume clocked by the railways. This implies market share loss for the company, warn analysts at JM Financial Institutional Securities Ltd.

The decline in volume has larger implications as well. Concor is the largest container rail transporter in the country with dominant presence in connecting inland markets with ports and, hence, export and import (Exim) trade.

The data issued by the company shows a 1% fall in these volumes for Q1. Domestic volumes were down 0.6%.

As the chart alongside shows, volumes have been slowing for some time now, broadly reflecting weak economic trends. But the decline in the June quarter possibly implies worsening of the economic environment. Weak Exim container traffic will have a bearing on volume trends at ports, given their positive correlation.

Part of the deceleration can be explained by the intensifying headwinds in global trade. Global shipping consultancy Drewry recently downgraded its forecast for global port throughput growth in 2019 from its earlier prediction of 3.9% to 3%. The downgrade underscores trade tensions and regionalization of manufacturing supply chains, which is crimping demand for intermediate goods, warns Drewry.

Since Concor has a strong presence in Exim volumes, it will naturally face some heat. Part of the impact can be mitigated by price hikes it had implemented earlier in FY20. Whether the company managed to pass on the price hikes to customers will have to be seen. Concor pays Indian Railways in advance (under the advance freight scheme). Slow transmission of the price hikes and low volumes can hurt earnings in the coming quarters.

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