How Ocean cargo industry may rebound from COVID-19: Part II

As we noted in yesterday’s edition, Analysts for Drewry’s “Container Forecaster” observe that the outbreak of coronavirus (COVID-19) has laid bare the fragility of humankind and the supply chains that help us to live as we have become accustomed.

Drewry adds that it is too early to say precisely how COVID-19 will impact the container shipping world and how it will measure against the container market’s nadir of 2009 due to the uncertainty surrounding the virus. 

That will only become possible when these key questions can be answered:

*Will the virus spread with the same force in every geographical region?
*When will the virus be contained so that normal social and economic activity can be resumed?
*Will government rescue measures be sufficient to prevent a permanent scarring of the global economy?

“The main difference between our three scenarios is the timing of the recovery,” says Philip Damas, head of Drewry’s Supply Chain Advisors,

If China is a reliable guide, countries can expect that containment will take a minimum of three months, although because different regions are on different curves and there is a lack of uniformity in containment methods, it seems that China’s example is a best-case that few, if any, will replicate. 

For this “base-case scenario,” analysts have taken the view that global containment will not be achieved for at least six months, says says Philip Damas, head of Drewry’s Supply Chain Advisors,

 “While the direct public health impact might vary from region to region, in our view all countries will suffer economic hardship as a consequence of COVID-19. Countries with relatively few cases will still experience a fall in container handling due to the interconnected nature of world trade. A finished goods shipment from China to the U.S., for example, is only possible because of numerous other prior movements of primary and intermediate inputs from elsewhere in the world.

The only thing that is certain is that 2020 will be volatile from a supply-demand perspective. Ocean carriers’ finely tuned skills in the art of capacity management are going to be sorely tested in the coming months. It is their daunting task to judge how much containership capacity is needed during the demand pullback, and also to be ready to service the market when the recovery begins, whenever that may be. 

Making the task even harder, competition laws mean that carriers have long been forbidden to discuss collective capacity actions. 

Analysts for Drewry can see a case for relaxing these laws during exceptional “Black Swan” events such as COVID-19. 

“While the intention of such rules in more normal times is to prevent unfair pricing for cargo owners, in these more chaotic days the consequence of leaving capacity decisions to individual lines to plot for themselves could be a haphazard result with either too much or too little capacity available at critical times,” concludes Damas.