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The impact of Covid-19 on global shipping: part 1, system shock The rapid spread of coronavirus has had a major impact on global shipping markets, with the slump in demand for goods from China having a ripple effect on everything from container ships to oil tankers. In part 1 of our coronavirus special, we look at how it has unfolded so far.

April 2, 2020

Y The coronavirus crisis escalated to unprecedented levels in March.

ou can read the second part of this piece, The impact

of Covid-19 on the global shipping sector: part 2,

silver linings, here. 

Adele Berti

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You can also read a timeline of the most signi�cant events

involving the shipping sector here.

Initially, everyone thought that it was China’s problem.

Nobody thinks that anymore. The �rst country to be hit

by Covid-19 is now the only one with a recovering

economy and re-emerging population. For the rest of

the world, uncertainty is the only certainty.

The soon-to-be global pandemic began in late

December with only a dozen cases in Wuhan, China. The

coronavirus outbreak has now tightened its grip on the

entire world, with Europe as its current epicentre. As of

the 2nd April it has now infected almost 900,000 people

and claimed nearly 50,000 lives.

With Western countries now enforcing nationwide

lockdowns that could last for months if not years, world

economies are in danger of bleeding out. Numerous

industries are at a standstill and the shipping sector is

navigating uncharted waters.

Over the past two months, Ship Technology Global has

been speaking to analysts and experts – both directly

and indirectly – to offer a comprehensive view of how

the global pandemic is affecting the industry.

January: a shock for the Chinese maritime sector

Prosperity within the shipping sector has long been

strongly tied to China, a major trade partner for several

countries and a key leader in shipbuilding.

Throughout January, during which the virus started

spreading across the rest of the country and to its

neighbours, the industry seemed to experience only a

marginal impact – initially witnessing only a minor fall in

demand as ports in China and nearby countries started

operating at limited capacity.

“The outbreak came at a time when shipping companies

are used to lower demand due to the Chinese New Year

(CNY) and had already planned for this, for example by

blanking sailings in the container shipping industry,”

BIMCO chief shipping analyst Peter Sand told Ship

Technology Global magazine earlier last month.

The situation largely deteriorated as January passed by

and the CNY holidays were extended. After a passenger

tested positive for Covid-19 onboard a Princess Cruises

ship off the coast of Japan, ports started limiting – and

eventually banning – cruise traf�c at their terminals.

Asian ports in countries including South Korea, Taiwan

and Singapore also started introducing screening

procedures at their hubs, putting Chinese crews under

quarantine and working to limit the spread of the virus.

From the very beginning, these initiatives caused

signi�cant setbacks for both the cruise and shipping

sectors, which found themselves dealing with orders

and trips cancellations, spikes in costs and a drop in

trade opportunities. In addition, Chinese shipping was

hit by a nationwide ban on all non-essential travel, a

largely reduced workforce and the closure of production

and shipbuilding facilities.

As BIMCO’s Peter Sand puts it, “coronavirus caused

demand to fall lower, and remain at lower levels for

much longer than in a usual year; for many in the

industry it became about prolonging their measures for

dealing with CNY, which were already in place, with

little other options to deal with the blow.”

According to �gures from Chinese think-tank the

Shanghai International Shipping Institute, this led to

reduced capacity utilisation – which fell between 20%

“Coronavirus caused demand to fall lower, and remain at lower levels for much longer than in a usual year.” “

and 50% at the biggest Chinese ports – and a sharp

increase in the use of port storage facilities.

February: the impact on global shipping

Despite Asia’s prolonged struggles, it wasn’t until

February that the global shipping sector started to really

feel the impact of the Covid-19 pandemic.

As IHS Markit principal consultant Daejin Lee explains,

shutdowns and limited activity further led to labour

shortages across Chinese maritime segments, which in

turn affected trade. “Exports from mainland China have

dropped signi�cantly in February 2020 as the

Purchasing Managers Index compiled by IHS Markit

dropped from 51.1 in January to 40.3 in February,” he

says. “It is not surprising but still massive; it’s the

sharpest deterioration since our survey started almost

16 years ago.”

Mid-February data from market intelligence service

VesselsValue showed a radical drop in demand for

Chinese crude tankers from an average of 3.4 billion

tonne miles per day in 2019 to almost zero. According to

the company’s Charter Rate assessment, the daily cost of

hiring a very large crude carrier (VLCC) for a year

plummeted by over 20% between 14 January and 14

February 2020. Spot earnings also decreased by more

than 70%.

This was just the start of what was about to become a

global crisis for all sectors including shipping, which was

hit by slowing demand in goods’ production, exports and

oil. Here are some of the key �gures from February.

VesselsValue chief operating of�cer Adrian Economakis

told us in early March: “In terms of rate, the most

signi�cant affected have been the large crude tankers

and the large bulkers. China is a signi�cant importer of

crude oil, usually through VLCCs, so the reduction in

economic activity in China is certainly having a negative

demand effect for crude tankers.”

“The reason that coronavirus is having particularly horrendous effects on the shipping industry is its relationship with China.”

“

Analysis from BIMCO is further testament to this trend,

as it showed VLCCs and overall tanker freight rates were

subjected to heavy downward pressure towards the

second half of February. “Earnings from the Persian Gulf

to China have dropped from $103,052 per day on 2

January to $18,326 per day on 18 February 2020,” said a

blog post from BIMCO at the end of the month.

In February, capesize was another heavily affected

category, which is in largely driven by China. “The

problem with capesize is that the market had been

terrible anyway, and it’s gotten even worse,” said

Economakis in March. “It is effectively reaching a �ve-

year low at around just over $2,000 a day earnings,

which means they’re losing a lot of money per day.”

Finally, the container sector, another category that

signi�cantly relies on China, fell victim to the

coronavirus outbreak. As Economakis put it, “The

container sector is naturally less liquid but we have seen

a reduction in rates and values. Containers are the most

closely linked to economic activities and economic

activity is down all around the world.

“The story here is the reason that coronavirus is having

particularly horrendous effects on the shipping industry

is its relationship with China. China really is the driver of

the shipping industry. We are so dependent on Chinese

demand and also Chinese exports, so demand for raw

material, exports of a �nished product for driving cargo

volumes and cargo demands.”

March: coronavirus in Europe

The coronavirus crisis escalated to unprecedented levels

in March. Even though deaths in China slowly started to

decrease, an ever-growing number of cases started

appearing in Europe. Soon after the World Health

Organisation declared the Covid-19 outbreak a

pandemic, the whole of Italy was put into lockdown and

was quickly followed by Spain, France and, towards the

end of the month, the UK and some US states.

“The virus is still spreading like wild�re,” says Navin

Kumar, director of Maritime Research at Drewry. “The

impact is already visible. Trade has been severely

impacted, charter rates are down, supply chains have

been disrupted. The world has been too dependent on

China for everything. And this pandemic has come as a

rude shock to them.”

IMF @�MFNews · Follow

.@KGeorgieva: It is now clear that we have entered a recession. We project a rebound in 2021, but only if we contain the virus and prevent liquidity problems from becoming a solvency issue. ow.ly/ryji50yXK6P #COVID19

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12:03 PM · Mar 27, 2020

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During a webinar hosted by BIMCO and Bloomberg

Intelligence in March, BIMCO’s Peter Sand introduced

his presentation with a gloomy forecast: the

International Monetary Fund expects the global

economic outlook in 2020 to reach at least the same

levels as the Global Financial Crisis – meaning a world

recession is inevitable.

Needless to say, this means that future months could

become increasingly harsh for the whole global sector,

which will be forced to operate in a limited way. This,

Sand stressed, is not going to be the sole result of the

coronavirus pandemic but rather a ripple effect of its

spread, the introduction of the 2020 sulphur cap by the

International Maritime Organization, and the failed

implementation of the US-China phase one trade

agreement.

“After a disastrous 2019, the shipping industry would

have de�nitely bene�ted from the trade deal between

US and China,” con�rms Drewry’s Kumar. “The trade

deal required China to import a certain volume of some

commodities in 2020.”

Narrowing down on sailings, BIMCO analysis showed all

sub-categories of shipping will soon fall prey to the

situation. In the dry bulkers’ realm, for example, freight

rates have suffered as a result of IMO 2020 and

coronavirus, though the capesize sector has also

witnessed even harder times.

Meanwhile, demand for oil tankers is currently on the

rise as the breakdown of the OPEC+ alliance – which

triggered a 30% fall in oil prices and a potential price

war amongst world leaders – is supporting Arabian

crude oil exports. Nevertheless, Covid-19 is expected to

heavily damage oil demand for 2020, something that will

negatively affect oil freight rates in the coming months.

Finally, said Sand, “container shipping [could soon be]

developing into the epicentre of the crisis in the global

shipping industry, due to the fact that containerised

“Container shipping [could soon be] developing into the epicentre of the crisis in the global shipping industry.” “

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goods, being produced in East Asia predominantly have

already been hit”.

Demand in this realm continued to slow, partially due to

the postponement of the CNY, the missed introduction

of the China-US agreement and struggling economies in

the west. “Production facilities in China may have

workers now, but in terms of productivity we are still

not seeing 100% of activity,” said Sand. “The number we

saw from late last week was an indication of around 70%

of productivity. And then of course, in order to see a

sustained �ow of cargo out of the Far East, we can only

see the backlog of orders to be delivered right now. And

right now we’re fairly busy doing something else in the

Western world to keep orders coming.”

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