THE worst-case scenario for container shipping is sobering, to say the least.

Failure to get its house in order could cost the industry as a whole more than $23bn, according to shipping consultancy Sea-Intelligence. This eye-watering sum leaves little doubt that the crisis will have its casualties in the box shipping sector.

“We left 2019 looking at 2020 with mixed feelings. For container shipping, we expected a repeat of what we already had, but the one thing that has ruined every forecast and projection is the pandemic,” BIMCO chief shipping analyst Peter Sand said in a recent webinar.

“The World Trade Organisation’s optimistic outlook is for world trade falling by 13% and a rebound by 21% in 2021. Its pessimistic scenario is a 32% drop in 2020. It is highly likely we will see at least the 13% fall in trade.”

Many container lines are already facing a cashflow crunch, according to sources speaking to Lloyd’s List, with reduced sailings from Asia to North America and Europe meaning income is drying up and unlikely to be given a boost any time soon due to the perilous economic outlook impacting demand.

While spot freight rates for carriers are currently stable they are masking the “disastrous effect” of the slowing economic activity on their bottom lines, according to Mr Sand. The idling of ships and blanking of sailings is artificially propping up the market, he said.  

We recently assessed which companies in the sector will be better positioned to ride out the storm in a special article that also features in this month’s Lloyd’s List magazine. Non-subscribers can get a taste of the situation facing container lines in our weekly podcast.

Bailouts and cost cutting

The debt burden of the top 14 carriers combined stands at around $95bn, according to a new report from the International Transport Forum.

With volumes contracting and global economic activity almost at a standstill, the ITF predicts that carriers will soon be seeking government aid to stay afloat.

However, the ITF warned that any financial assistance should be aligned with public policy priorities such as improving the environment, while also closing loopholes that allow ships to be registered in other countries to avoid taxation or labour regulations.

Government policies, such as accelerated depreciation schemes and tonnage tax regimes, had encouraged risk-taking behaviour, it added, and were unfair to those companies that had low debts.

It called for governments to utilise any economic leverage it gains from bailouts to address these issues and ensure there is no “unfair competition” in the containers market.

Shipping lines are obviously also looking to cut costs during this crisis and one interesting development has been to divert ships on extended journeys as a way to avoid expensive canal transits.

With very low fuel prices currently as a result of the oil price crash, the longer voyages are viable alternatives to counter the weak market conditions.

For example, Maersk and Mediterranean Shipping Co are bypassing the Suez Canal on some return voyages from northern Europe to Asia and routing ships via the Cape of Good Hope.

CMA CGM, which belongs to the Ocean Alliance, is another carrier that diverted some ships via the Cape of Good Hope rather than use the much shorter route, but it is no longer doing so.

Hapag-Lloyd said members of The Alliance had switched a US east coast to Asia service that usually transits the Suez Canal to the longer route, which takes an additional week, but is much cheaper. The Alliance, consisting of Ocean Network Express, Hapag-Lloyd and Yang Ming, is also evaluating other services.

Meanwhile, the Panama Canal Authority (ACP) and the Suez Canal are easing conditions for customers to help mitigate the impact of the coronavirus outbreak.

The ACP has implemented temporary changes to the requirements for the placement of booking guarantees and advance payment of reservation fees when the reservation is confirmed. Customers will be allowed to place the guarantee for the payment of the booking slot prior to the vessel initiating transit.

Separately, the Suez Canal has extended its discount offer for containerships transiting the canal on backhaul voyages.

Ships heading eastbound from the US east coast have received discounts since 2016, but that has now for the first time been extended to voyages from northern European ports destined for terminals east of Port Klang.

Shipbuilding outlook

Meanwhile, the global fleet of trading ships will grow at a much lower rate over the next five years than it did in 2015-19, according to a new report.

For the 2020-24 period, the Lloyd’s List Intelligence Shipbuilding Outlook predicts that the total fleet will grow at an average annual rate of just 0.9%, adding 5,597 vessels, which is 35% or 1,964 vessels less than in the 2015-19 period.

However, in dwt terms, the average growth will be much higher at 3.9% on average per year.

Some 2,279 vessels are forecast to be delivered in 2020 in total, up from 1,872 vessels in the past year, but lower than the 2,312 vessels delivered in 2018.

“The coronavirus outbreak will mean lower deliveries in 2020 than originally scheduled, but since the Chinese shipyards have the majority of the orders, work has resumed quicker than in many other parts of the world,” LLI said.

“Another obstacle highlighted for shipyards is that owners from Europe will have problems in taking delivery of ships due to travel restrictions for both management and crew.”

Contracts in China, the world’s biggest shipbuilder, are forecast to shrink to 388 vessels in 2020, which is its lowest number since 2001. However, that figure will grow to 1,134 vessels by 2024.

The Lloyd’s List Intelligence Shipbuilding Outlook offers accurate forecasts and unique insight into each shipping market segment. For more information, follow this link.