Mar 20 | 2020
Weighs Industry Recovery Prospects from Covid-19
Breakbulk spoke with Wei Zhuang, regional manager Asia, BIMCO, and Breakbulk Asia advisory board member, discussed the impact of the coronavirus pandemic on Asia’s shipping and project cargo industry. Following are edited comments.
Q: So far, what impact and challenges does the coronavirus outbreak present for the whole industry?
From the current situation analysis, the impact of the outbreak has temporarily emerged from the following four aspects:
• In the government’s response to prevent and control the epidemic, measures have been introduced at domestic and foreign ports resulting in certain restrictions on the entry and exit of ships to the port. Loading and loading of goods and the ship’s own material replenishment have been seriously affected.
• Shortages of domestic labor and material supply have delayed the resumption of production at shipyards mean domestic ship orders cannot be completed on schedule.
• Prevention and control measures have impeded Chinese crews’ ability to return to work. Countries have placed various bans or measures against crews in response to the outbreak in China, and they cannot obtain visas.
• Reduction in trade volumes as domestic and foreign measures keep workers from returning to work, meaning orders cannot be completed. At the same time limited logistics and transportation delays deliveries.
Q: What are your expectations for recovery?
Frankly, 2020 will be a very difficult year for the project freight industry. First, the coronavirus caused many projects to be stalled and port restrictions have stranded a large number of ships.
For dry bulk, profitability had already been hit by seasonal factors such as the additional fuel costs due to IMO 2020 sulfur limits. That and the extension of the Chinese New Year has been reflected in sea freight rates.
Peter Sand, chief market analyst at BIMCO, said: "The dry bulk market has traditionally been up after the Chinese New Year, but this year this is not the case. The new corona virus inhibits the upside conditions of the market."
I anticipate the following scenarios in which the recovery time of the shipping industry will vary in different contexts:
Scenario 1: Assuming the outbreak is largely contained by the end of February, The Chinese labor force will return to work in early March, prompting a corresponding rebound in manufacturing, industrial production and refinery production, as well as shipping demand.
Scenario 2: It is assumed that large-scale in-term isolation will last until mid-March, but economic activity will begin to recover thereafter and reach normal in April-May.
Scenario 3: The worst-case scenario we envision, the continuation of the outbreak remains unclear, resulting in too much uncertainty, and the return of normalcy to the shipping industry is unpredictable.
Q: Do you think there will be any adjustments to the strategic planning of shipping companies for the Asia-Pacific region?
For traditional shipping companies, there will be some adjustments to the strategic planning of the Asia-Pacific region, as capacity needs to be deployed in other parts of the region in order to be as derogated as possible. However, China's capacity is not digestible in the rest of the Asia-Pacific region, so this adjustment will not really affect the region’s strategic layout.
Q: What advice do you have for the industry on the impact of this outbreak?
First, the timely formulation of infectious disease contract terms to help clarify the legal responsibility and obligations between the cargo owner and the shipowner.
For freight forwarding, pay attention to the work of epidemic prevention, and the physical condition of front-line staff. Strengthen communication with shipping companies to understand the route and port dynamics, reduce the information lag caused by unnecessary delays.
For cargo owners, be sure to update the latest engineering progress with contractors, logistics companies, shipping companies, and communicate with the trade side to work out an executable, alternative plan to ensure the conclusion of existing contracts, and reduce losses on both sides.
Breakbulk Asia will be held Aug. 3-4 at the Shanghai World Expo Exhibition & Convention Center (SWEECC), Shanghai, China
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