Box lines face $17bn revenue shortfall as demand slumps

News ID: 80488

Date: 14 March 2020 - 08:33

What was initially a supply problem emanating from China has now become a demand problem in developed economies. Container carriers could face steep losses if in revenue should the downturn follow previous recessions.

Efforts to prevent the spread of coronavirus are set to push down demand for containerised goods this year

BOX SHIPPING IS HEADING FOR POTENTIALLY DIFFICULT TIMES.

CONTAINER lines could be facing a $17bn shortfall in revenues this year as developed economies’ efforts to halt the spread of coronavirus lead to a slump in demand.

Despite the rapidly improving situation in China, which is seeing manufacturing and logistics return to normal levels following the extended shutdown from February, the spread of coronavirus beyond China has led to drastic measures being taken in both Europe and the US, with other developed economies following suit.

In its latest analysis of the coronavirus outbreak, SeaIntelligence said that the efforts to curb the spread of the disease could easily lead to a drop in demand for container shipping in the coming weeks, not just from China but from all sourcing locations.

The effects of the retrenchment in demand are “worryingly similar” to those seen during the recession of 2008-09, SeaIntelligence said.

“If we are to assess the potential impact on the container shipping industry from the coronavirus outbreak, a comparison with the financial crisis becomes quite relevant,” it said. “And, very simply, the impact of the financial crisis was a 10% decline in container volumes in 2009.”

That 10% decline in volumes applied to 2020 would equate to 17m teu, or roughly $17bn in revenues, it added.

“Positive news is clearly coming out of China in terms of container shipping volumes and logistics developments,” SeaIntelligence chief executive Alan Murphy said.

“The number of vessel calls in Chinese ports is normalising, and indications are that manufacturing and inland logistics are gradually also getting back towards a level of normality.”

But he added that the problems were clearly not over.

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“The virus is now a pandemic and within just the last few days events have unfolded very rapidly across the world, with more and more countries more or less shutting down temporarily, and financial markets in an outright meltdown.”

The real underlying problem was the impact this would have in the longer term in 2020 and possibly beyond, not only on consumer spending but also on the willingness of companies to order goods in the first place.

Nevertheless, container lines had demonstrated an unusual discipline with capacity management that had helped keep rates up for the cargo that is being handled, SeaIntelligence said.

“The carriers’ reaction to the virus in China leads to an expectation that they will react equally swiftly to the impending decline in volumes in the coming weeks.”

Swift capacity management would ensure that rates did not fall as dramatically as they did in 2009, meaning that carriers’ main issue would be with volumes rather than a decline in rates.

And this would be important when a recovery comes.

“If we then look ahead to 2021 — or potentially even to autumn 2020, depending on how quickly the economy bounces back from the virus impact — we should expect a very strong rebound effect,” SeaIntelligence said.

“The strong drop in 2009 volume was followed by an even larger increase in 2010, as volumes quickly came back, driven by a combination of consumers starting to spend money again, and businesses needing to not only cater to the increase in demand, but also restock their inventories. This effect is highly likely to also play out after the virus impact.”

But the situation will likely get worse before it gets better, it warned.

“From what we have been seeing over the past week, it now appears clear that we will be getting a demand-driven impact on the supply chain going forward. This impact is fundamentally different from the China impact, which was driven by a lack of manufacturing capacity, and the demand-driven impact will therefore be global in nature and also potentially much larger.”