Coronavirus – the shipping story so far

Moore Maritime

Moore Maritime is monitoring the Coronavirus very closely and maintaining a constant dialogue between offices to evaluate events as they unfold. All offices in the key maritime centres remain open with staff on-site or WFH in accordance with relevant local guidance. The global pandemic presents a challenge unique in our lifetime and our primary goal is to continue to provide an uninterrupted service to the Maritime Industry during these challenging times.

There will be unexpected challenges in the days and months ahead but the Moore Maritime team are fully prepared to respond to those challenges. If you have any queries or concerns regarding your financial reporting or issues related to COVID-19 please contact your local Moore firm

The key findings from our discussions are the importance of personal relationships, early intervention and maintaining a clear dialogue with all stakeholders.
 
As many of you are writing year end Coronavirus notes we felt it would be useful to prepare a recap of the impact on shipping.
 
Coronavirus – the shipping story so far
 
In most years, China’s economy falls by as much as 25% for Lunar New Year but recovers immediately afterwards. This year, the Wuhan shutdown began on Chinese New Year’s Day and national economic activity fell until late February, when it bottomed out at about 50% of the pre-Coronavirus level.  Over 80 Million people were quarantined, 80% of domestic flights were grounded and national public transport use fell by around 50%. 
 
The Chinese government’s official new ‘infection’ numbers began to go negative on 14th March. Activity has since recovered to around 70% of the pre-Coronavirus level for key indicators such as coal consumption and air pollution, suggesting that industrial activity is back on a growth track.
 
However, China is now feeling the impact of the word-wide spread of Coronavirus with a quarter of the world’s population under some form of ‘Lock-down’. Containerised freight throughput at China’s ports on 20 March was only 71% of the 31 December 2019 level and it is still falling as more countries implement the kind of restrictions that China introduced back on 23rd January.
 
If global data replicates the Chinese experience, then around 20%-30% of global economic activity could be lost in 2Q 2020.  The situation will significantly impact the US and Europe (including the UK) where consumer spending represents over two thirds of GDP. The loss of demand will reverberate along the supply chain through manufacturing to raw materials and finally to the energy sector.
 
The global demand shock is not affecting all sectors of shipping equally, however, there are some common factors:
  • China has announced quarantine period for ships arriving from certain infected countries, congestion, delays, loss of hire and disruption is inevitable.
  • Worldwide quarantine periods for crew implemented by many countries will affect the ability of shipping companies to perform crew changes. Around 100,000 seafarers must change every month to comply with current rules. There is also the question as to who should pay for quarantined crew.
  • A shortage of tonnage arising from crew change issues might theoretically drive freight rates up, but the lack of firm cargoes could counter that.
  • A number of key ports have reported operational issues, particularly in India which has gone into a three-week lockdown.
Tanker owners have benefitted from the Saudi decision to produce an extra 1.5 VLCC cargoes every day, this decision has driven crude oil tanker freight markets to levels not seen since the tanker wars of the 1980s.  Additionally, there are a significant number of tanker vessels being used as storage. We don’t know how long this will support rates but it is good news in the short term.
 
Bulk carrier owners have found that Chinese demand for imported iron ore, coal and grains has broadly kept to seasonal patterns. Falling commodity prices spur China’s spot purchases, so freight markets have actually risen (basis Baltic Exchange data) during the Coronavirus outbreak. 
 
As gas prices fall, China is expected to make use of its recent expansion in import terminals which have doubled its capacity from 70 to 150 Mn T a year in just three years.
 
For container shipping companies, the news could hardly be bleaker. China’s export markets have closed for an indefinite period. A shut-down of global consumers will cause a catastrophic fall in volumes.
 
It is too early to call when the peak of infections will take place. What is clear is that any shape of economic recovery will be supported by trillions of dollars of fiscal stimuli and infrastructure spending.

 

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