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Coronavirus: Carriers could feel impact for months to come

A slow return to production in China will limit seasonal recovery. Additional blankings are likely ahead of any upturn

Container lines will be hit by mounting costs and falling revenue as sailings are cancelled

THE fallout from the coronavirus outbreak will affect container lines far into the second quarter of the year, with additional blankings likely to be imposed before the situation returns to normal. 

“It is too early to tell the real outcome yet, but I can see this going through into May at least,” said Orient Overseas Container Line president Grace Liang.

Container growth is forecast to be reduced by 0.7% this year because of the outbreak, based on the current level of disruption.

Ms Liang said the extended factory closures had already caused a significant number of blankings announced, but that more were likely to follow if output failed to return to its normal seasonal levels.

Moreover, any recovery would be affected by the line’s ability to come back up to speed quickly when volumes returned.

“The question will be how quickly lines can get capacity back in service,” she said on the sidelines of the Cargo Logistics Canada conference in Vancouver.

She warned that while carriers could cancel sailings to avoid voyages with low load factors, they were still accruing costs while not earning revenue.

“If you lay up a ship, you are still paying for it. If the ship is owned, there are finance charges, and if it is a chartered vessel there are the charter costs,” she said.

She also pointed to a wider problem of overcapacity in the sector, saying that the volumes of scrapping needed to increase.

“We need to manage capacity,” said Ms Liang. “We keep on talking about overcapacity, and certainly now as there is some delay in installing scrubbers it is taking the pressure off, but with the addition of new capacity coming in we need to be looking at more scrapping.”

Carriers needed to match supply with demand if the industry was going to become more sustainable, she said.

But the most immediate impact the industry faced was the outbreak of the coronavirus.

“It is premature to forecast what will be the regional and global economic challenges. But Wuhan is a major manufacturing centre and a key hub for oil and gas, which is why we have seen volatility in the Baltic Dry Index and the price of oil.”

But with a structural excess of capacity and new vessels still joining the fleet, 2020 would remain a challenging year for carriers, even without the impact of the coronavirus, she said.

Meanwhile, port operators on the receiving end of exports from China are already beginning to feel the effects of blanked sailings and are lowering throughput expectations for the year.

Prince Rupert Port Authority director Michael Inman said the port, which has shortest transit time from China to North America, did not expect volumes to grow this year.

“There were too many unknowns even before the virus outbreak,” he told Lloyd’s List. “Tariffs have already hit the volumes we are receiving but now we are seeing the blankings as well and we are losing a whole month of volumes.”

Prince Rupert, which has direct rail links to the US Midwest, is heavily reliant on US-bound cargoes, with around 65% of its import volumes headed there.

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