Covid-19 Forcing Shipping Industry into Crisis
Short-term consequences remain clear
Posted: May 7, 2020 |
As the virus continues to spread, it remains immensely difficult to forecast the medium to long-term implications, yet the short-term consequences are clear: demand and freight rates are dropping and continue to drop as the uncertainty of Covid-19 is impossible to forecast. Demand is slowing from consumers that have resulted in reduced shipping requirements with all modes within the transportation industry. Simple, supply and demand drive the industry requirements.
The Covid-19 pandemic is wreaking havoc on global shipping, which could initiate another crisis in what has been a struggling industry. To prevent the spread of the virus, a number of ports and shipping companies have implemented preventive measures leading to cancellation and delays which is causing severe disruptions within the industry. No surprise as most industries have implemented policy to protect the employees and customers.
Approximately 80% of world goods trade by volume is carried by sea and China is home to seven of the world’s ten busiest container ports, according to the United Nations Conference on Trade and Development. As a result, disruptions have had a profound impact.
In China, the coronavirus outbreak has led to a significant decrease in the number of ships calling at ports such as Shanghai and Yangshan, of which the former is the biggest port in the world, handling approximately 43.3m twenty-foot equivalent unit (TEU) in 2019.
The number of port calls at Shanghai and Yangshang declined by 17% in January compared to the same period in the previous year.
This has had a knock-on effect globally with a number of ports seeing cargo volumes decline. The Port of Los Angeles, the largest US container port, recently announced that it saw cargo volumes fall approximately 25% in February compared to the prior year.
Preventative measures have already had a direct impact on shipping and, as the virus continues to spread, global demand will decline further as constraints on markets vital to the industry such as manufacturing and industrial activity become tighter.
How the COVID -19 problem is solved and the timing of either months or years will drive the transportation industry. Demand will continue to decline as the uncertainty to resolution is unknown. Some studies have shown that as many as 80 percent of those with COVID-19 are "," showing no or very mild symptoms. A large problem plaguing the medical and scientific communities to find solutions.
COVID-19 and lack of demand may not be the only thing the industry must be aware of as Fed Chairman Says U.S. ‘May Well Be in a Recession’ after Coronavirus Leads to Record One-Week Unemployment Numbers. Lack of jobs certainly drive consumer demand and obvious transportation requirements.
With all the challenges faced by the transportation industry, the shipper now has important opportunity to reduce their costs. Shipping rates have plummeted plus shippers are scrambling for business making them agreeable to lowing rates. If the shipper has not signed a contract in the past few months, they are in a great position to capture savings as they partner with CPC.