The box ship industry has been hit hard by the impact of coronavirus with demand and volume declines, but there are signs it can ride out this volatile time
The box ship industry has been hit hard by the impact of coronavirus with demand and volume declines, but there are signs it can ride out this volatile time.
Consultancy Sea-Intelligence recently highlighted the difficulties the market will face. It says in the most ‘benign’ scenario, carriers will experience a 10% volume decline in 2020 due to the pandemic but manage to prevent any material decline in freight rates. In this case profits will decline by US$6Bn compared to 2019 and the main carriers combined will lose US$0.8Bn in 2020.
The situation could potentially be worse – Sea-Intelligence warns “In the worst case, carriers will see freight rates decline to the same degree they experienced during the financial crisis in 2009. In this case the main carriers will collectively lose a staggering US$23Bn in 2020.
Indeed, some 435 sailings have been blanked due to the coronavirus, Sea-Intelligence says. Its data shows blank sailings led to the removal of 3M TEU from Asia-Europe and transpacific combined due to the coronavirus pandemic.
Before the coronavirus pandemic struck, there had been positive signs from the container shipping market. From the start of the year, there had been some recovery in demand and freight rates, and the consolidation in the sector over the last few years had strengthened it and laid down good foundations for recovery.
Then the coronavirus pandemic hit. But all is not lost. Those foundations and signals of financial recovery will stand the industry in good stead for riding out the coronavirus. So far, tactics used by the carriers are helping to stop freight rates crashing, which could topple the cautious foundations of recovery seen at the beginning of the year and last year.
While the number of blank sailings are stacking up and highlight the drop in demand being experienced, carriers are being disciplined – they are carrying these reductions out to stop a crash in freight rates.
And signs show this strategy has been successful. Rates have not crashed. The latest issue of Sea-Intelligence’s Sunday Spotlight (19 April) says over the past six weeks, the CCFI contract rate index is 11% higher than at the same period last year, despite the drop in both demand and oil prices.
Further, the Shanghai Containerised Freight Index as of 17 April recorded a 9% increase compared to the same period last year and has consistently been above last year’s levels for the last six weeks.
This disciplined approach by the carriers is key and while there are difficulties to face when blanking sailings, such as the costs accumulated by vessels when not sailing, this approach is stopping a freight rate crash, which would have huge market ramifications.
The Q2 issue of Container Shipping & Trade shows other positive signs for carriers. Our markets update feature shows demand from Asia has improved, as post panamax and larger container ship vessel journey counts out of Asia have have increased, according to VesselsValue figures. Weekly journey counts of post panamax and above box ships from China to global trades saw a “fast and rapid” fall at the start of February – but at the start of March there was a “fast, V-shape recovery,” says VesselsValue chief strategy officer Adrian Economakis.
And it is not just carriers feeling the impact of the Covid-9 pandemic. As our transpacific and Europe features show in this issue, container ports are struggling with the ramifications. For example, Port of Long Beach is expecting to see a Q1 loss of around 7% due to the coronavirus and US/China trade war. But despite this, the port is adamant it is pushing ahead with its capital improvement plans and emphasising efficient and reliable cargo movement. These factors have surely never been so important.
© 2023 Riviera Maritime Media Ltd.