Container lines could lose upwards of USD 23 billion in the corona crisis

Date: Monday, April 6, 2020
Source: Shipping Watch

Container shipping companies face massive billion dollar losses in 2020 if they fail to prevent a collapse in rates, projects Sea-Intelligence. More than 200 sailings have been voided.

If the container shipping lines are unable to prevent a collapse in rates, they could face a huge loss of USD 23 billion in 2020, writes analyst firm Sea-Intelligence in a new analysis.

So far, the rate level for the container shipping lines have remained at a normal level in the first quarter despite the corona virus outbreak, which has put a damper on the volume of goods that need to be transported across the globe.

But what will happen in the coming months, asks the firm. There are two scenarios. One is the optimistic version, in which shipowners are able to keep rates at a sustainable level.

This will require a lot of discipline from everyone, notes Sea-Intelligence. This has so far been achieved in the first quarter, but historically the container lines have been unable to maintain such discipline.

Sea-Intelligence has looked at rate developments during two crises in the past 20 years. The crisis in 2001 following the recession and the attack on the World Trade Center in New York, as well as the financial crisis in 2009. Rate levels here dropped 16 percent and 23 percent, respectively.

"In the worst case where the 10% volume loss is combined with the same level of losses on rate levels as the carriers themselves reported in 2009, we would see carriers lose USD 23.4 billion in 2020. And this is even taking into account a 0% rate change in 2020-Q1," writes the firm.

 

The 15 biggest shipping lines have in the past eight years earned a combined profit of USD 20.9 billion combined, and such a scenario will naturally be highly challenging to the sector, writes Sea-Intelligence.


Voided sailings increase significantly

For several weeks, the corona virus outbreak has made container lines void numerous sailings. Last week they voided 45 sailings. This number has now increased to 212, as the major tradelanes between Asia and Europe have seen capacity go down by more than 30 percent.

However, with the risk of losing billions of dollars, voided sailings should only be used as an attempt to prevent a decrease in rates.

"(...)) despite the fact that billions also have to be targeted in cost savings from the blank sailings," writes the firm.

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The voided sailings in and of themselves are a problem for the supply chain globally. Transit times increase due to large volumes of goods piling up in the ports, waiting for the next ship. Meanwhile, more cargo needs to be transported between ports which currently only have few direct services.

In China, where the corona virus outbreak began, the first problems with the ports emerged, as shipping companies were forced to load reefer goods in other ports than planned. This problem is now escalating globally, writes Sea-Intelligence.

Cargo piling up

For several weeks going forward, capacity on Asia-Europe will be down by 30 percent, but importers to Europe are already experiencing lower demand and still have goods headed for their stockpiles in the next four weeks.

According to Sea-Intelligence, this means that 30 percent of the cargo to European ports is not welcome, as stockpiles are filled up with unsold goods.

Add to this that there will likely be more bankruptcies among importers in the time to come, which will also leave containers in the port terminals.

"We will continue to see multiple ripple effects as the weeks progress – the bottom line is that the loss of volume cannot be mitigated, but how the industry stakeholders choose to address the operational challenges will make all the difference," writes the firm.

 

Read from the original source.

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