With the world in the midst of the coronavirus pandemic, the shipping industry is already feeling the impact as the global economy enters a deep recession.
Hundreds of ship crossings have been canceled as the first ports in China, and then around the world, saw trade collapse – with millions of workers and consumers stranded.
At the center of it all are the 1.6 million seafarers in the world, out of 50,000 tankers and freight carriers. Many of them are unable to leave their ships or find themselves trapped in hotels without being paid and cannot return home.
Each month, 100,000 merchant seamen arrive at the end of their contract on board their ships and must be repatriated. But the pandemic has stopped that.
“Working at sea is often described as similar to prison, except that there is no television,” said former ship’s navigator Nick Chubb.
“Although my experience has been generally positive, a feeling of deep fatigue sets in towards the end of a contract. I already had a four-month contract on an extended three-week tanker, and I found it incredibly difficult to manage.
“Some of these sailors have already spent nine months away from their families. And they’re unlikely to be able to go home anytime soon, “said Chubb, who is now director of the Thetius marine technology intelligence platform. .
AP Moller-Maersk, the world’s largest shipping company, is one of those who halted crew changes, and says it did so to protect them, reducing the number of interactions they need.
He adds that “the rapid changes in world travel are likely to cause seafarers to fail in places where they cannot leave or obtain sufficient assistance.”
However, even before the coronavirus epidemic, the industry faced major problems.
First, the need to switch to cleaner fuels due to the introduction of the sulfur emissions cap for 2020 by the International Maritime Organization.
Second, the fallout from the US-China trade war and the failure of Washington and Beijing to implement the first phase of their trade deal.
“Shipping companies have struggled to make money in the past decade,” said Alan Murphy, managing director of Sea-Intelligence analysts in Copenhagen.
For example, for a pair of trainers of $ 100 (£ 80), the cost of ocean transport will be a fraction of that – only 10c. Therefore, the distance traveled by the goods to reach the market is irrelevant in terms of costs. And that’s why China, with its low labor costs, has become the world’s leading manufacturer.
Peter Sand, chief shipping analyst at Bimco, the world’s largest international shipping association, warned in a recent webinar that 2020 may become increasingly difficult for the industry.
“We need to ensure that local ports and terminals remain open, to ensure that food and goods continue to flow where they are needed – because this is where the shipment gives the general public a lifeline. “
Faced with rippling supply and demand disruptions around the world, shipping companies have cut their operations. So far, 384 departures have been canceled, and the first half of 2020 could see a 25% drop in shipments, with a 10% drop for the whole year, says Sea-Intelligence.
Chinese ports resumed shipping in April, but many ports serving major consumer markets are still operating well below capacity.
The industry has yet to lower prices, but if shipping companies are forced to do so and freight rates drop 20% – as they did after the 2008 financial crisis – and shipping volumes are expected to remain 10% lower “or see operating losses in the range of $ 20-23 billion,” said Murphy.
“It would wipe out the profits of shipping companies over the past eight years,” he adds.
There are many unknowns in the previous sentences, and Sea-Intelligence points out that it is not yet clear how long it will take for fractured global supply chains to return to normal after the lockdown is completed.
For consumers, there may well be periodic shortages to come, says Jody Cleworth, consultants at Marine Transport International.
“In developing countries like South Africa, exports are almost completely halted, so only essential goods passing through ports are banned. The seasonal goods that we expect in Europe in summer would therefore be limited from these countries.
“For example, charcoal for your summer barbecue. At the moment, these containers have not left South Africa, so they will not arrive in the UK on schedule, “he said.
But there is one exception to this gloom: the oil tanker sector. Demand for oil tankers has increased following the fall in oil prices, which has propelled the oil tanker sector “to the top,” says Thetius’ Nick Chubb.
“There are ships that are now chartered for $ 230,000 a day as floating offshore storage when the price of oil recovers. It’s almost a story of two industries, “he says.
But given the impact of Covid-19 on economic activity, energy demand in 2020 is expected to be significantly lower, and it is possible that these tankers will store oil for some time.
More from the BBC series with an international perspective on trade:
So what will be the effect of Covid-19 on the shipping industry beyond 2020?
With almost no cargo moving by air, shipping could become even more crucial. Already 90% of world trade by volume goes by sea. Yet many analysts expect the drop in demand in Europe and North America to have a longer-term impact.
“We could speak of a decade, at least, of difficulties,” suggests Nick Chubb of Thetius.
Alan Murphy says the pandemic will raise questions about the shape and sustainability of world trade – and globalization. “Many protectionist arguments will be advanced against outsourcing.
“This will have a very profound impact on the organization of global supply chains. It will be a political subject in the years to come. “
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