March: coronavirus in Europe
The coronavirus crisis escalated to unprecedented levels in March. Even though deaths in China slowly started to decrease, an ever-growing number of cases started appearing in Europe. Soon after the World Health Organisation declared the Covid-19 outbreak a pandemic, the whole of Italy was put into lockdown and was quickly followed by Spain, France and, towards the end of the month, the UK and some US states.
“The virus is still spreading like wildfire,” says Navin Kumar, director of Maritime Research at Drewry. “The impact is already visible. Trade has been severely impacted, charter rates are down, supply chains have been disrupted. The world has been too dependent on China for everything. And this pandemic has come as a rude shock to them.”
During a webinar hosted by BIMCO and Bloomberg Intelligence in March, BIMCO’s Peter Sand introduced his presentation with a gloomy forecast: the International Monetary Fund expects the global economic outlook in 2020 to reach at least the same levels as the Global Financial Crisis - meaning a world recession is inevitable.
Needless to say, this means that future months could become increasingly harsh for the whole global sector, which will be forced to operate in a limited way. This, Sand stressed, is not going to be the sole result of the coronavirus pandemic but rather a ripple effect of its spread, the introduction of the 2020 sulphur cap by the International Maritime Organization, and the failed implementation of the US-China phase one trade agreement.
“After a disastrous 2019, the shipping industry would have definitely benefited from the trade deal between US and China,” confirms Drewry’s Kumar. “The trade deal required China to import a certain volume of some commodities in 2020.”
Narrowing down on sailings, BIMCO analysis showed all sub-categories of shipping will soon fall prey to the situation. In the dry bulkers’ realm, for example, freight rates have suffered as a result of IMO 2020 and coronavirus, though the capesize sector has also witnessed even harder times.
Meanwhile, demand for oil tankers is currently on the rise as the breakdown of the OPEC+ alliance - which triggered a 30% fall in oil prices and a potential price war amongst world leaders - is supporting Arabian crude oil exports. Nevertheless, Covid-19 is expected to heavily damage oil demand for 2020, something that will negatively affect oil freight rates in the coming months.
Finally, said Sand, “container shipping [could soon be] developing into the epicentre of the crisis in the global shipping industry, due to the fact that containerised goods, being produced in East Asia predominantly have already been hit".
Demand in this realm continued to slow, partially due to the postponement of the CNY, the missed introduction of the China-US agreement and struggling economies in the west.
“Production facilities in China may have workers now, but in terms of productivity we are still not seeing 100% of activity,” said Sand. “The number we saw from late last week was an indication of around 70% of productivity. And then of course, in order to see a sustained flow of cargo out of the Far East, we can only see the backlog of orders to be delivered right now. And right now we're fairly busy doing something else in the Western world to keep orders coming.”