A crucial connection point and enabler of trade worldwide, the shipping industry across the globe faces serious challenges in the wake of the impacts of COVID-19. I would argue that the carry on effects are severe, with around 90 percent of world trade carried out through ships.1 They are still by far the most cost-effective way to transport goods and raw materials around the world.
Low cargo rates, overcapacity on shipping containers and rapidly evolving environmental regulations are just a few of the ways that the COVID-19 situation is delivering some early year disruption to the shipping industry.
There has been a gradual decrease in the World Container Index from mid-December 2019 to the beginning of February 2020, but a sharp decline of around 15 percent per 40-foot container was seen in the index from February to the end of March 2020. The Container Index increased by 0.3 percent at the beginning of April 2020 and 9.7 percent per 40 feet container up compared to the same period in 2019.2 The index usually starts getting better from March, but this year due to COVID-19 the index only started gaining from April.
Even though the bunker prices have been increased about 35-45 percent from January 2020, largely due to changes in fuel regulation on the usage of Low Sulphur Fuel by IMO 2020, the crash in the oil prices due to COVID-19 have nullified this effect.3
During the calendar week 13 and 14 of 2020, the average ship waiting times at six major ports were about 32 percent below normal which means less traffic in the ports, indicating a decline in port activities. By the end of April 2020, the average ship waiting times were 20 percent above normal indicating a recovery in port activities.
China has a strong influence on the shipping sector since it is a major trade partner for several countries, but the container shipping market is facing some early year disruption due to COVID-19.
Exports from China have dropped 17.2 percent compared to the previous year in January and February of 2020 combined due to factory shutdowns after an extended Lunar New Year holiday period and widening travel restriction imposed by the government to mitigate COVID-19, disrupting the supply chain of China.4 Manufacturing PMI (Purchasing Managers' Index)i of China plunged to record lows of 40.30 points in February 2020 and raised to 50.1 in March signalling a stabilization in business conditions.5
In the United States, imports from China have stumbled 31.4 percent (non-seasonally adjusted) to the lowest since May of 2009. The Manufacturing PMI has reached a record low of 48.50 points in March 2020 marking lower than the average which is 53.53 from 2012 until 2020.6
According to forecasts by the World Trade Organization, global trade could fall by between 13 and 32 percent.7 All regions would suffer double-digit percentage declines in trade, with exports from North America and Asia the hardest hit. I predict that sectors with complex value chains, such as electronics and automotive products, would also see steeper falls.
Among the business leaders that I speak with, these shifts are having a significant impact on the freight rates due to a drop in supply and demand for raw materials and commodities. Reduction in cargo and missed port calls have forced freight rate lower. Further, operating businesses with limited capacity and blank sailing have had a negative impact on the financial capacity of organizations. The current conditions in the market will intensify the consequence of cash flow and liquidity risks, leaving many shipping companies uncertain about the availability of additional financing, where it may be needed, and/or about whether refinancing of existing loans will be on acceptable terms.