Container Shipping Lines Cancel Sailings to Weather Coronavirus Storm
Date: Thursday, April 9, 2020
Source: The Wall Street Journal
The ‘blanked’ services extend into the early part of the traditional peak season for international shipping
Global container shipping lines have canceled more than 160 sailings over the past week as they try to maintain freight rates in the face of billions of dollars in potential losses driven by falling trade demand.
The service cancellations have grown from 45 last week to 212, according to Copenhagen-based consulting firm Sea-Intelligence ApS, a trend indicating that the summer peak season could be largely muted and that the shipping lines that carry most of the world’s manufactured and retail goods expect the economic fallout from the coronavirus pandemic to extend into the peak shipping season.
Sea-Intelligence estimates the biggest international carriers will see combined losses ranging from $800 million to $23 billion this year, depending on how they manage the economic impact from widespread coronavirus-driven lockdowns.
The financial fallout for the shipping lines appears to be relatively mild so far compared with that of airlines and other transportation operators that depend on passengers.
But shipping lines are hunkering down with major national economies wavering while their businesses halt operations, factories idle assembly lines and job losses mount. Carriers including Denmark’s Maersk Line, Switzerland-based Mediterranean Shipping Co. and Japan’s Ocean Network Express Pte. Ltd. are trying to guard against crashing freight rates on major trade lanes as capacity increasingly outweighs demand.
“It’s a developing storm,” said Sea-Intelligence Chief Executive Lars Jensen. “The challenge will be to carefully manage capacity going forward so to prevent a freight rate collapse.”
Mr. Jensen said industrywide losses could reach $23 billion if liners embark in an all-out price war similar to that after the 2008 financial crisis, when freight prices fell to levels that barely covered fuel costs.
“The rate collapse during the financial crisis was partly caused by an inability to reduce capacity in a timely fashion,” he said. “The potential loss is of such a staggering magnitude that carriers are highly likely to blank far more sailings in case we begin to see rates slide too far.”
Cancellations focused on Asia-Europe and trans-Pacific services began to mount in January and February when the coronavirus began to spread in China, pushing Beijing to bring economic activity to a near standstill.
China is now pushing out cargo again, but demand has nosedived with urban centers in the U.S. and Europe increasingly being locked down. Some U.S. ports have pulled back operating hours at cargo terminals because of the diminished demand.
Freight rates are currently around 20% below break-even levels but have held relatively steady since the start of the year as the blanked sailings restrained capacity and price-focused competition.
“The trick is not to fall into the temptation to gain market share by putting more ships into the water,” said Mr. Jensen.
He predicts the pandemic will cut demand for container shipping this year by about 10% overall, about the same decline as in 2009, when the financial crisis unfolded disrupting world trade.
Denmark’s A.P. Møller-Mærsk A/S, parent of Maersk Line, suspended its 2020 financial guidance in March, saying the coronavirus will have an unknown impact on its bottom line. Maersk Line, considered a bellwether for global trade and the world’s biggest boxship operator, had earlier said it was expecting an operating profit of $5.5 billion this year.