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2020 March 17

Coronation is going on

The coronavirus spreading across the planet has lead to en masse cancellation of cruises, sinking of container ports’ throughput and growth of supertanker freight rates due to fall of oil prices. Logistic specialists postpone container shipments with the stagnation expected to continue till mid-summer 2020.

A virus from a box

Most of container terminals worldwide suffer the fall of throughput due to the global market slump. In January-February 2020, container traffic via the ports of Shanghai and Hong Kong decreased by about 11% each, year-on-year. American ports of Long Beach and Los Angeles showed a decrease of 7% and 13% accordingly.

Container gate of Russia, Big Port St. Petersburg, is relatively all right: its container throughput over the first two months declined by only 1%, year-on-year. This minor decrease amid the general panic should be attributed to the fact that imports in Russian container turnover stopped prevailing after 2014 while exports are supported by a weakening rouble.

However, we shouldn’t get our hopes up: if the pandemic continues for another several months the container throughput will fall considerably anyway.

“We have to rebook container shipping for later dates and for services of still operating lines, – comments Kamran Aleskerov, Director of AGGL, member of АСЕХ in Azerbaijan. – We also note business decline, there are delays in obtaining shipping status information from agents under quarantine or working remotely”.

According to Denis Bobrakov, ACEX Commercial Director in Novorossiysk, there is a shortage of containers for imports from Turkey. The expert says stagnation in the market of container shipping will last till the middle of summer. “The key task for the global transport sector today is to wait for the challenge to pass having retained the competence and personnel”, - believes Denis Bobrakov.

 

Oil comes up

The situation different for oil cargo. The plunge of oil prices caused by the coronavirus pandemic and the OPEC+ failure to agree on joint actions has lead to the growth of freight rates for storage tankers. That is because of the countries’ strivings to replenish the strategic stock of oil and speculators’ plans to sell oil at a higher price in the future.

In January-February, oil transshipment via the port of Primorsk grew by 26% to 7.79 million tonnes while exports via Kozmino terminal and Murmansk storage unit climbed by 5%, year-on-year.

Russia’s defiance of OPEC+ agreement means that oil exports will continue growing in the coming months.

Nevertheless, both pandemic and the acute phase of the price war in the oil market will come to an end sooner or later. Then, a reverse situation is possible: the stock can prove to be excessive, the demand will fall and the volumes of oil shipping will consequently decrease.

Bulker rate

The situation in the segment of dry bulk cargo exports is even favorable for Russia amid the weakening of the national currency. On the other hand, lack of facilities for transshipment of certain cargoes, primarily mineral fertilizers is like a spoon of tar in a barrel of honey. It is time to kick ourselves for not having launched such projects as Primorsk ULC, Lugaport or UralChem terminal yet. Quite possible, rouble will start recovering when the price war in the oil market is over.

Also, there is still a problem of insufficient capacity of railway approaches to the Far East ports because the modernization of eastern railways is behind schedule while coal exports are especially promising via that region (especially in view of the situation with coronavirus improving in China and S. Korea while it is aggravating in Europe).

Cruises will wait

The virus seems to strike the most painful blow on the cruise industry. One by one, cruise liners are put into quarantine that maked the largest operators including Princess Cruises, Royal Carribean, Costa Cruises etc. suspend shipping. Different states close their ports for cruise ships.

Russia has not so far rejected accepting liners. Moby SPL still has the plans to arrange voyages from Saint-Petersburg. Tallink says they do not yet plan cancellation of calls to Saint-Petersburg scheduled for April 29 and June 1.

However, the situation can change rapidly as media already reports about the plan to close the Schengen zone for foreigners.

Afterbite

Of course, nobody can predict how long will the pandemic and the oil price war last. As of today, the industry expects the situation to improve by mid-summer, at least. During this time, some shipping companies, especially small and debt-ladened ones, can be put out of business. Consequently, shipbuilding companies loosing orders will suffer losses.

Upon normalization of the situation, a different problem will most probably come out: delayed growth of demand for container shipping will be accompanied by the growth of freight rates. On the other hand, market blanking and further recovery can have a ‘sanitary’ impact on the global fleet balance: excessive tonnage will naturally disappear and the construction of new fleet will require time.

As for the cruise industry, we must not exclude that with the normalization of the epidemiological situation operators will also raise the prices to restore virus-related losses and, perhaps, revise their shipbuilding programmes.

If the situation does not become normal by the middle of summer, the global trade can face irreversible changes caused by a long isolation: national economies will opt for import substitution and protectionism, particularly in tourism. In that case, the return to previous intensity of shipping will take much time because of the reluctance to lose considerable investments in import substitution projects, including the state ones.

Anyway, the year of 2020 will not be able to avoid high volatility in the market of freight, crude oil, oil products and consequently bunker as well as in seaborne transportation as a whole. And long-term strategies will have to be revised more than once.

Vitaly Chernov