Shipping Market Comment Q2 2020
Editorial Comment Corona Virus – COVID‐19: Implications for container shipping
By early April more than one third of the world is in lockdown, COVID‐19 infections are exceeding 1million people. Mario Draghi wrote a very good comment in the FT on 27th March headlined “We must mobilise as if for war”. The EU and the US hastened to offer unlimited cash from their central banks. What they didn’t answer is how the distribution towards small and mid‐sized enterprises shall work as any private bank inbetween will be full of concerns and with its foot on the brake. All comparisons with the financial crisis of 2008/09 are absolutely misleading. Back then there were a few institutions lacking billions of dollars. This time it’s millions of enterprises each in need of thousands of dollars. In stark contrast to the virus, which spreads faster than a wildfire, there are no simple transmission channels for funding except helicopter money. Yes, we will see a sharp economic downturn, many enterprises will go bust amid the bureaucracy that slows down the flow of state liquidity to small companies. From an economic perspective, it will be bad. How bad exactly, no one can say yet as we haven’t got a clue how to combat the virus yet.
Dealing with shipping data at the moment is complicated, if you get your hands on any useful data. Problem is that there are few to no shipping time series available reflecting the status quo. The most recent post‐corona crisis figures are the RWI/ISL container port throughput data for February which still look fairly moderate, showing a 19 % fall. It is the steepest reduction since the start of the index in 2007. If it was our motivation to produce shocking news, we could stop here. But our motivation is to put numbers into context. Every year in February the index records a notable fall – it is typical seasonality. Some years it drops as much as 15 %. The average February decline over the years was 12 %. So how much worse than in normal years was the fall this time? According to our calculation just 4‐7 percentage points. It is also important to note that the China port volumes captured by the RWI/ISL index were down 17 % year‐on‐year. Which in turn means that container volumes were constant in the rest of the world during February! When we look at real time AIS data till Sunday 29th March, our research supports these findings. It shows that the number of vessel calls at 500 major container ports across the globe remained largely stable, falling by just 4.7 %. In the vessel classes between 1,000 and 5,400 TEU, that are populated to a large extent by tramp tonnage, port calls only reduced by 3.7 %. Furthermore, within the last 2 weeks no major changes took place.
Outlook – what is important now
The challenge ahead of us is to avoid a depression after the recession! Corona is a temporary tragedy. The key is to remain in the game in the long run. To this end, US and EU economic aid is absolutely vital because it helps keeping employees on the payroll and teams in place. State aid to support enterprises through the crisis is 100 % correct, as only surviving companies can quickly rebound after the crisis. An economic recovery from the ashes of broad insolvency is hardly possible. As it seems, China took the right decision to combat the virus with a massive lockdown of just two months. However it is doubtful whether we can copy‐paste the Chinese path and apply it in the rest of the world. China is a well‐oiled autocracy and therefore better equipped to fight such a pandemic than western democracies. In Europe and the US we tend to act too late and too slow, hence it will take longer to fight COVID19 – probably a 3‐month lockdown rather than 2 months as in China. Outside Europe, where national health systems are far less developed, it could be more like 5 months. How severe the economic losses will be, is pure guesswork. We can say that every month in lockdown slashes GDP by 3.0 %. However, the good thing is: Once the lockdown is over and the catching‐up process starts, there will be at least 1.5 % additional GDP growth due to basis effects in the following year.
Dear readers – stay healthy!
Dr. Thomas Hartwig