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Martime transport defied the COVID-19 disruption


By: Hector Laserna, Terlica General Manager

The beginning of the pandemic in the first half of 2020 caused maritime trade to decrease by 3.8% in 2020. But in the second half there was asymmetric recovery, and by the third quarter, volumes had returned for both, containerized [JD1]   [EM2]   trade and dry bulk commodities. However, there has yet to be a full recovery for tanker shipping.

Maritime trade has performed with diverging paths across regions and markets. It has experienced increased consumer spending on goods, with a growth in e-commerce, especially in USA. This higher spending was also later supported by more general optimism in advanced regions based on the rollout of vaccines.

In 2021, in tandem with the recovery in merchandise trade and world output, maritime trade is projected to increase by 4.3% (figure 1). Over the past two decades, compound annual growth in maritime trade has been 2.9%; UNCTAD expects in 2022–2026 that rate will slow to 2.4%.

Hardest hit has been tanker shipping, with less of an impact for containerized trade, gas and dry bulk shipments.

Lockdowns, travel restrictions and production cuts have compressed the demand for fuel. In 2020 shipments of crude oil, refined petroleum products and gas together fell by 7.7%. But the impact      was less for dry bulk commodity trade which fell by only 1.5 %, and containerized trade fell just 1.1%.

Maritime trade weathered the storm in 2020 and remains positive, however, not all countries have been able to support  recovery; hindered by supply-chain bottlenecks which have led to shortages in equipment and containers, less reliable services, congested ports, and longer delays and dwell times.

For shipping on the other hand, soaring freight rates surcharges and fees have bolstered profitability. A compounding factor was temporary with the blockage of the Suez Canal in March 2021. [JD3]   The grounding of the massive container ship “Ever Given” blocked the canal, delaying ships heading for Europe, and increasing the constraints on ship and port capacity. Some voyages had to be re-routed around the Cape, adding up to 7,000 miles to their journey.

On the other hand, COVID-19 [EM4]   has also accelerated megatrends that in the longer-term could transform the maritime transport landscape. Emphasizing the importance of ensuring continuity in supply chains, some are arguing that reshoring and nearshoring will accelerate resulting in deep reconfiguration of supply chains.  Instead, enterprises are likely to blend local and global sourcing, modifying their strategies according to product and geography with a blend of reshoring, diversification, replication and regionalization.

The pandemic has accelerated pre-existing digitalization and environmental sustainability trends and new technologies have stimulated the rise of online commerce. All these developments are expected to generate new business opportunities for shipping and ports as well as for other players in the maritime supply chain, taking advantage of synergies between technology, environmental protection, efficiency and resilience, especially for maritime transport.

We have witnessed a notable rise in container freight rates. In 2020, lockdown measures and other impacts of COVID-19 suddenly cut the demand for containerized goods. April and May 2020 were the most difficult months: by the end of May 2020, a record 12% of global container capacity was idle or inactive – 2,7 million 20ft containers.

In the second half of 2020, demand for container shipping started to pick up. Vessel supply capacity remained limited; container shipping capacity levels started to decline in line with growing demand as trade continued to recover. By the end of 2020, freight rates had surged to unexpected levels. This was reflected in the China Containerized Freight Index (CCFI). Towards the end of 2020 and early 2021, container shortages and congestion at ports, along with other disruption, led to record container freight rates, notably on the routes from China to Europe and USA.

As Asia slowly began to recover, other countries remained under national lockdown and restrictions so the importing countries could not return containers; these impediments led to higher container dwell times at ports and empty containers not returning to the system where they were most needed; with containers scarce and ports suffering from congestion, high freight rates have boosted the profits of global container shipping companies.

Dry bulk freight rates also reach new record highs 

In the first half of 2020, the demand shock from the COVID-19 pandemic added downward pressure to an overly supplied market and led to a drop in dry bulk shipping freight rates.

See above the Baltic Exchange Dry Index, which measures the cost of shipping various raw materials, such as coal, iron ore, cement, grain and fertilizer (figure 3.5)

Tanker freight rates dip to the lowest levels ever

There was also a surge in tanker freight rates, boosting profits for tanker shipping companies. In the second half of the year, COVID-19 impacts weakened demand and rates started to drop in an oversupplied market. By January 2021, oil tanker spot earnings were $5,237/day, and by July had fallen to $2,753/day, the lowest levels ever (figure 3.7). Given current low global demand and future uncertainties short-term tanker freight rates will probably remain low.