15 Apr 2020
The outbreak of Covid-19 has reached pandemic proportions. The number of casualties keeps increasing — it stands at 127,587 on the last count — and it has affected more than 2,013,918 people across the globe. Needless to say, this outbreak has dealt a massive blow to the global economy, and a major casualty in this development is the shipping and logistics industry. Already reeling from the implementation of IMO 2020, the shipping industry has felt the impact of the Covid-19 pandemic across all the major sectors — dry bulk, containers, and tankers — and shipping companies have been forced to adapt to the new “normal” in a short span of time.
The global crisis and its fallout in the shipping industry
The first nation to bear the brunt of the virus was China. The manufacturing units of China account for 45% of the Chinese GDP and usually operate for 50 weeks in a year only breaking for the Lunar holiday. Chinese manufacturing and supply chain have a significant impact on the dry bulk segment. This year the break was extended beyond two weeks, and manufacturing took longer to resume normalcy. Though initially there was a slowdown, Chinese manufacturing units are on the path to recovery as China achieves containment of Covid-19. The dry bulk market is staging a mini-revival. The BDI, although not recovering to December levels, has bounced off its bottom.
Container shipping is primarily driven by consumer demand. With lockdowns and movement restrictions being placed around the world, container shipping has taken a hit due to the reduced demand. With China coming out of Covid-19, consumer demand is returning to its markets. Experts predict that the global impact on container shipping can be salvaged in the medium term provided the Covid-19 spread is contained, and markets return to normalcy.
The tanker market was already in upheaval before Covid-19 and now is under even more pressure. The economic slowdown has resulted in a lack of demand for oil, and at the same time, the supply gut further pushed prices down. Though this overall is harmful to the market, it has also opened up an opportunity. With an abundance of production and no idle storage capacity, tankers are being used as storage vessels. This has ensured that the tanker industry has a leeway to manage the current crisis. The LNG segment has not been affected to a great extent since contracts are on multi-decade terms.
Experts are expecting an upturn in the fortunes of the Chinese commodities and energy consumption in the second half of the year. As normalcy returns, it would bring greater confidence for shipping companies. Although China seems to be in the clear, the rest of the world is still battling to keep the virus at bay.
Surviving the threat
Shipping companies can survive this unprecedented situation by maintaining cash flow and keeping both cash and ships in reserve. This is easier said than done. It may be possible for the major shipping companies since they have the financial bandwidth to tide over the crisis, but the smaller companies will find it tough. With payments being delayed across the value chain, smaller companies are faced with challenges just to continue operating. The need for working capital funding has increased. Small and medium shipping companies must find a way to acquire working capital to maintain cash flow to weather the current storm.
Costas Paris. (2020). Shipping’s Smaller Operators Are Most Susceptible to the Coronavirus Financial Impact. The wall street journal, 1–4.
Williams, M. (n.d.). How Coronavirus Might Impact the Shipping Industry. Retrieved from https://glg.it/articles/how-coronavirus-might-impact-the-shipping-industry/