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BIMCO: Coronavirus Shows Shipping's Dependence on Chinese Economy

alt Port of Qingdao (file image)

By The Maritime Executive 02-22-2020 12:27:00

In a bulletin released Friday, shipping association BIMCO warned that the impact of the coronavirus epidemic in China is already serious, and it could worsen if stringent public health measures are sustained for an extended period.

The effects are already visible. Alphaliner has estimated that 1.7 million TEU of export capacity out of China has been canceled since late January, and anecdotal reports indicate that many of the remaining departures are sailing with less than a full load. Ships' agencies and carriers have reported that trucking shortages are a serious factor, and BIMCO indicates that in some provinces, as much as two thirds of the driver workforce has not reported for duty.

BIMCO chief analyst Peter Sand laid out three likely scenarios for the impact of the epidemic on shipping. In the first, China's control measures succeed, and work begins to return to normal in Chinese factories by March. Shipping demand would return accordingly. In the second, normalization does not occur until April. In the third and worst scenario, the virus continues to spread in ways that are not possible to predict or analyze. (With significant new cases in Iran and South Korea reported Friday, the last case may be possible.)

Scenario 1 entails a relatively minor disruption to global supply chains and a manageable impact on carriers. Scenario 2 would be more serious. In the second case, with an enforced shutdown in China extending into April, "a temporarily obstructed active labour force . . .will extend disruptions to manufacturing, hinterland transportation and port operations. Given the lower container volumes, caused by a halt to regional manufacturing, the disruption could extend into a global supply shortage of retail and manufactured goods," Sand wrote.

For tankers, the damage has substantially been done, Sand predicted. Between the lifting of U.S. sanctions on Cosco Dalian and the impact of the coronavirus, tanker rates plummeted from more than $100,000 per day in December to just $18,000 per day in January. Sand forecasts that "earnings will be at the disease’s mercy during February through March and will not necessarily exhibit a sharp rebound afterwards."

"The outbreak of the novel coronavirus has illustrated just how dependent shipping has become on the Chinese economy. If large parts of Chinese labour force are quarantined, the commercial shipping segments will be stuck in gloomy territory," Sand wrote.

For shipping interests, the impact on Chinese shipbuilders may prove to be one of the few positives: the delivery of new tonnage has been temporarily restricted by quarantine measures, which will help to support rates.

source: www.maritime-executive.com

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