Container shipping hit hard by coronavirus

The coronavirus outbreak has caused around 105 cancelled sailings from Asia to Europe and North America. Such a decline in capacity and cancellations leads to a loss of around $1bn for the entire container liner trade.

In the period from 20 January to 10 February, the capacity in container liner shipping with China fell by 20 to 40 percent compared to the same period last year, according to an analysis by maritime research agency Drewry. The fears are that the losses will be higher.

Drewry has also developed various scenarios for the development of the virus and the effect on container liner shipping.

In scenario A (most positive) it is assumed that the virus will be curtailed quickly in China and that the Chinese economy will be fully functional again within two months. The expectation is that rates for sea freight will rise and that extra or larger ships will try to make up arrears.

Scenario B is based on the further spread of the virus outside of China, which reduces consumer confidence. Far-reaching quarantine measures could cause serious disruption of transport and distribution. Such a scenario would reduce the constant growth in container volume. In this context, shipping companies would withdraw capacity from the market, have fewer sailings and scrap ships faster. Shipping companies’ rates and profit margins are coming under pressure.

The most negative scenario C assumes a pandemic and a revival of the corona virus in China. As a result, trade would come to a standstill, putting production and consumption under pressure. Such a scenario would lead to a global recession with a strong decrease in container volume. To prevent bankruptcies, shipping companies will proceed with large capacity reductions and frequent ship dismantling.

Scenario C is the most unlikely, according to Drewry. We are currently in scenario B. If the virus can be contained in the coming weeks and the economy and logistics in China recover quickly, scenario A is still possible.

Source: evofendex

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