Global Shipping Suffers as Rates Plunge amidst Lockdown

The National Herald Archive

As an unprecedented reaction to a pandemic has hurt the economy and international trade, the shipping industry takes a hit with cancellations and plummeting rates. (Stock photo/Julius Silver)

The maritime shipping industry faces its biggest crisis in over a decade as commodity trade plummets and scheduled sailings are cancelled in response to restrictive measures imposed to fight COVID-19, a situation that has shaken world trade in a way experts predict could be devastating.

“With the exception of the crude tankers market, all other shipping sectors have seen a plunge of freight rates and consequently, their earnings,” said Marcos Vassilikos, managing director at Athens-based Eurobulk Ltd. “We may soon start seeing bankruptcies, unless there is state intervention and support,” he said.

London-based Drewry Supply Chain Advisors cited 19 cancellations of scheduled sailings in the transpacific and Asia, North Europe and the Mediterranean on April 10, exceeding the weekly average cancelled sailing announced for this month as the impact of COVID-19 on maritime commerce expands.

“The outbreak of COVID-19 has laid bare the fragility of humankind and the supply chains that help us to live as we have become accustomed. Each passing day brings more grim new statistics that make it clear that our early assessment of the crisis and its likely impact on the container shipping market was too optimistic,” a Drewry report noted.

Production in China is being normalized following a very difficult first quarter, when many factories had stopped or minimized production, Vassilikos noted, but getting products to their final destination by ship may be disrupted if the current lockdown stretches longer than the world would hope.

“Until now, the majority of companies have managed to keep ships moving, despite the complications...however...if the lockdowns become wider and run into May or June, it may not be inconceivable to observe ships being stranded or severely delayed, thus disrupting the ocean transportation of goods,” Vassilikos said. “I hope that this won’t happen, as if it does, it will certainly affect our lives and the prices of consumer goods.”

Coinciding with the pandemic, the periodic downturn traditionally observed in the dry bulk sector over the Chinese New Year formed the “perfect storm leaving little room for earnings to bounce back,” according to experts at Piraeus-based shipping and shipbroking firm Golden Destiny. “Owners of large vessels in particular still face damp market conditions,” Golden Destiny experts said.

In contrast, the crude oil tanker sector in March saw a substantial surge in rates due to a sharp decline in oil prices and increased chartering activity on all major trading routes. Very large crude carrier (VLCC) earnings on the Middle East-China route, for example, shot up to $233,600 per day on March 31st compared with $31,000 on February 28th.

In whole, world merchandise trade is expected to fall by between 13 and 32 percent in 2020 as COVID-19 disrupts normal economic activity and life around the globe, according to a statement released by the Geneva-based World Trade Organisation (WTO) on April 8.

Nearly all regions will suffer double-digit declines in trade volumes this year, especially those of electronics and automotive products, while exports from North America and Asia will be hit hardest, according to the WTO, whose experts warned that “the decline will likely exceed the trade slump brought on by the global financial crisis of 2008-2009.”

“These numbers are ugly. There is no getting around that,” WTO Director-General Roberto Azevedo said in the statement. “But a rapid, vigorous rebound is will be an important ingredient here, along with fiscal and monetary policy,” he said.

As factories in China were closed for longer than usual considering the circumstances, Danish shipping giant Maersk in February warned that the coronavirus outbreak would burden earnings this year, adding to the woes of an already lagging container shipping sector.

“In addition to human risk, the outbreak of the virus also poses an economic risk to Maersk’s operations and its trade volumes,” a Maersk statement noted.  “Fear of the virus and the efforts to prevent its spread will see an increasing pressure on the supply-demand balance.”

Maersk’s shareholders lost 37% in value in the 3-month period since the beginning of the year due to a drop in container shipping demand, according to a Drewry report.

In addition to reduced trade, regular crew changes have been interrupted in China and at ports around the world, adding to the shipping industry's list of Coronavirus-related challenges.

“The restrictions in place have resulted in thousands of seafarers being at sea for several months already, and this, combined with demanding tasks, both physical and mental, increases exponentially the risk of marine accidents and disasters happening, which is a daunting scenario for an already fragile and stretched global economy,” said International Chamber of Shipping (ICS) Secretary General Guy Platten and International Transport Worker’s Federation (ITF) General Secretary Stephen Cotton in a joint statement released April 7.

An industry in which Greek-owned companies take the lead in terms of merchant fleet deadweight tonnage, maritime shipping is responsible for over 90% of international trade.

The sector’s forecast remains dreary as leading container lines are forced to cancel sailings, merge routes, and re-route ships amidst decreasing demand. Meanwhile, the market remains volatile as the world waits for a much anticipated solution to COVID-19 and the economic toll it has taken on business and trade globally.

“The stricter the lockdowns and the longer it takes to start relieving the confinement measures, the riskier it becomes for a gradual disruption of ocean transportation,” Vassilikos said.