From the News Desk: Will 2021 be better for shipping?
Amid all the uncertainty caused by the pandemic, shipping companies have performed well financially
Shipping was considered among the sectors most at risk from a global pandemic, but many companies have reported earnings either above year-ago figures or have at least exceeded initial expectations in 2020. However, as the year nears its close and optimism grows that the virus can be brought under control, there are factors that may make 2021 even more challenging
AS SHIPPING companies prepare to release their third-quarter results, there are very few alarm bells ringing that the industry is suffering any great adverse impact from the coronavirus pandemic.
Global containerised trade was up 2.7% in the July-September period, compared with the year-earlier period, and the year-to-date volume is just 3% behind the equivalent period in 2019 following a 6.9% rise in September, the second consecutive month of growth.
Third-quarter volume growth marks a startling turnaround for carriers, which, back in April, were left reeling from a 13.1% slump in volumes amid the height of the initial pandemic outbreak that would have left many fearing the worst.
Strong throughput at US ports in the past few months has shown that import demand is bouncing back faster than expected as retailers restock and there is much confidence that freight rates will remain high in the final quarter.
Tanker earnings may have weakened in recent weeks, and the sector is unlikely to benefit from increased floating storage during the second wave of the pandemic, but owners pulled in huge earnings during the first half of the year. US Gulf crude exports are also defying the odds, with European and Asian refineries still buying large volumes.
The dry bulk market has been volatile this year in comparison, but China’s massive infrastructure investment and resulting hunger for raw commodities such as iron ore and coal, as well as soyabeans to boost national reserves, has kept earnings at a reasonable rate throughout.
Against this largely positive picture for 2020, though, there are some dark clouds that could potentially see a shift in outlook for 2021 and beyond.
Much of the uncertainty is of course related to the global economy and how long the coronavirus pandemic will last. According to the International Monetary Fund’s latest forecast, China is the only major economy expected to record GDP growth this year but other markets will see a significant bounce back in 2021.
This is based on the assumption that the pandemic will be brought under control and economies return to something like normal. China’s v-shaped recovery is a positive sign following the initial outbreak there, while news of a potential vaccine ready in the coming weeks (revealed after the IMF estimates) has already buoyed stock markets.
But with the second wave of the virus still rampant in Europe and elsewhere, with high levels of unemployment and reduced demand for goods and energy products a likely result, there is no guarantee that a vaccine will be the panacea to the economic woes.
Similarly, with Joe Biden expected to be the new US president, a more aggressive approach to combating the disease than under the Trump administration could be implemented there early next year, which may have ramifications for consumer behaviour.
Capacity discipline has been one of the key reasons why container carriers have been able to record such high freight rates this year, with blank sailings introduced early and hard to align supply better with the fall in demand. But that situation is already reversing, with ships being returned to service and up to a fifth more capacity on some routes than last year.
A lack of new orders and deliveries for ships, and an acceleration in scrapping, has also helped to keep a lid on capacity growth and maintained the delicate market equilibrium. But with new orders expected to jump in 2021, any small change in fleet size could have an impact on market rates by the time they hit the water.
A lack of access to new ship finance, exacerbated by the uncertainty brought by the pandemic, is one reason for the lower new ship orders this year, but another factor has been the lack of clarity over decarbonisation and which fuels will be best suited to meeting future regulatory requirements.
The waters here are further muddied by the prospect of regionalisation in shipping’s environmental legislation, as opposed to one central set of rules implemented by the International Maritime Organization. Even if some form of consensus is reached, the cost of the drive towards zero-carbon shipping by 2050 will be an expensive one.
Added to all of the above, it should be pointed out that there has still been no permanent resolution to the crew-change crisis and with that the potential for increased safety concerns.
Even in the best-case scenario on the global economy, there will only be a return to growth in the second half of 2021, while many developing nations are expected to recover much more slowly. With this in mind, despite the positives from 2020, shipping must continue to proceed with extreme caution.
Shipping Outlook Forum
How to navigate shipping’s ‘new normal’ is the central theme of the forthcoming Lloyd’s List 2021 Shipping Outlook Forum, taking place on December 1.
The annual Lloyd’s List Outlook Forum has established itself as the agenda-setting event of the maritime calendar, gathering an exclusive panel of the industry’s leading lights with Lloyd’s List and Lloyd’s List Intelligence’s experts to directly answer the critical questions shaping the maritime markets.
Moderated by Richard Meade, Lloyd’s List’s managing editor, the event will feature an expert panel including:
Grahaeme Henderson, Vice-President, Shipping and Maritime, Shell International
Nick Brown, Marine & Offshore Director, Lloyd’s Register
Michael Parker, Chairman of Global Shipping, Logistics and Offshore at Citi
Johannah Christensen, Managing Director, Global Maritime Forum
Mark O'Neil, President and CEO of Columbia Shipmanagement
Angelica Kemene, Co-Founder and CEO at Optima-X | Enso XL, Head of Market Analysis & Intelligence at Optima Shipping Services
To register your place, follow this link.