Coronavirus Update @ 12th March

Chinese factories are slowly getting back to work with output reaching 60-80% of pre-Chinese New Year levels in most regions.

Tavel restrictions are challenging factories’ ability to get deliveries in from their suppliers and finished goods our for export., which means the backlog of factory orders is moving slowly, with air cargo services restricted and container lines impacted by blanked sailings.

Ports and terminals are operating as normal, but with the unprecedented blank sailings, it will take time before the buildup of containers at terminals and inland depots can be cleared.

The bulk of the blank sailings were announced during weeks seven and eight; weeks nine and ten have seen a clear tapering off, and the level of new announcements of blank sailings is back to normal, which means carriers are seeing demand ramping back up to normal levels over the next few weeks.

The number of Asia-Europe blanked sailings reached 46, of which 29 were directly attributable to the coronavirus outbreak and there are reports that many of the vessels that did sail from China are arriving less than half-full at their first port of discharge in Europe. 

Reduced passenger demand in Asia has led to capacity cuts of between 50% and 70% and intra-Asia rates have hit an “unprecedented” high – with prices higher than to Europe.

Charters, which many had hoped would provide salvation, are demanding extraordinary prices and it is still very hard to get availability for those willing to meet inflated rates.

Belly-hold capacity still remains low, as passenger traffic has yet to resume and remain impacted until mid to late April.

Looking ahead, the prospects for the container shipping market depend on how quickly the COVID-19 crisis will be solved on a global scale.

In China, the falling new cases of COVID-19 and the continuing easing of travel restrictions will help the industrial production to gradually return to normal levels.

Exports will pick up and gather pace in the coming weeks, in a context where importers around the world are seeking to replenish their depleted inventories.

Container shipping is expected to benefit from the rally, which could turn out to be a bonanza for container carriers, in an environment of record low fuel prices.

VLSFO prices have dropped by over 50% since their peaks in early January this year, with the price spread between VLSFO and 380 cst HFO falling to just $80-115 per ton.

However, demand from overseas countries could be slashed if their economies are brought to a standstill by a continued spread of the virus, as we are currently seeing.

In such a scenario, a prolonged muted demand for container shipping would become a real possibility and could see the inactive containership fleet, already at a record high of 402 ships/2.46 Mteu, grow even further.

At the moment the carriers are working to the optimistic end of the spectrum announcing a series of freight all kinds (FAK) rate increases on trades to and from Northern Europe and the Mediterranean starting 16th March and 1st April.

Other charges, including peak season surcharges, booking cancelation fees in some regions, detention and demurrage charges, and inland haulage rates are also rising across Europe.