How does the shipping industry stay afloat despite the COVID-19 torpedo?

How does the shipping industry stay afloat despite the COVID-19 torpedo?

Challenging times, but still vessel-peppered seas as operators continue to support and enable international trade that is critical to all economies and the provision of supplies. The coronavirus crisis remains unchartered water for the shipping companies that transport essential commodities, the world over. Clearly, however, the commercial cruise/passenger industry has taken the brunt of the impact. The ‘Diamond Princess’ quickly became the ‘headline’ of how this cruel and non-discriminating virus led to the quarantine of vessels and the halting of an entire multi-billion pound industry. It was however thought that the industrial shipping channels would remain largely unaffected. In order to determine the longer term impacts, only time, policy and understanding of the virus will determine if that is the case in reality. Port closures have caused a huge amount of disruption both on a container-by-container level and in disrupting the globally embedded trade flows. Whilst China was shut down, there was a huge reduction in empty containers reaching Hungary, for example, as the trade flow reductions from East-to-West were felt. OCI saw this manifest itself with limited operational capacity on our Hungarian trades which has been the trend we have directly observed across much of the rest of Europe. Often, however, these impacts also have a degree of lag associated with them which multiplies over time and causes a huge amount of uncertainty for local consumers and producers.

This wider situation has also opened the industry to a breadth of legal challenges. Some parties, namely buyers, have simply refused to take their cargo from ports as their warehouses have filled to full or have closed entirely. Further compounding this effect is that those ports that remain open have been hampered by an often limited workforce which has directly and dramatically added to congestion on the ground. For the relief effort against the pandemic, these additional points of resistance will delay vital resources heading to the front line.  As a result, some ports have have looked to anticipate these issues and have enacted ‘force majeure’ - typically included in standard terms and conditions - which, in essence, removes liability from the port when compliance with an agreed contract is not possible due to an event(s) that are typically outside their control - the coronavirus being such an example. Port closures have significant impacts on a human level as well, as evidently seen by the distress caused by passenger cruise liners being refused to dock in a range of locations. On a commercial level, these closures and reduction in trade flows have led to a huge number of shipping line workers being stranded around the globe - further impacted by the grounding of airlines. As The Economic Times believes that up to 40,000 Indian crew members alone have been stranded as flights have been cancelled and shipping has seized up. The Philippines, India, China and Indonesia are considered to supply the majority of the industrial shipping workforce and thus have engaged in major repatriation acts to get their citizens home in these unprecedented and challenging times. What cannot however be disputed despite all of the above, and the wider limitations on trade at present, is that it is imperative that trade does continue to push through to where it is demanded and needed. This is for a number of reasons including to ensure that economies can function as best they can now, bounce back as quickly as possible once the movement of goods is restored and, most importantly, deliver aid where it is most needed to support the global relief effort. Airlines such as Virgin Atlantic have, for the first time in their history, repurposed their fleet away from passengers and to cargo-only flights in order to support the distribution of aid across the planet. Fantastic steps that truly show the resolve of this industry. The Indian economy is a good example to highlight the severity of these challenging times. India is widely regarded as a pragmatic, dynamic, expanding and resilient trading economy as it supports its growing economy. Even this sub-continent has been dramatically impacted with stringent lockdowns lasting 3 weeks, 6 weeks or even longer. Through our partners in the market and on the ground, we have seen the impacts and reductions in India, especially on trucking. During much of March 2020 all road movements (trucking) have been restricted and thus the movement of goods has also completely halted - despite rail continuing to operate. This has resulted in tens of thousands of containers adding to the congestion, whilst they also sit in quarantine, and the risk of this congestion being pushed onto the shippers of B/Ls whilst the lines and policy makers scramble to find a path through this unprecedented situation. The indirect consequences of this are yet to be known but in the meantime congestion, a limited workforce, unpredictable and limited scheduling presents major challenges to those looking to trade with this vital economy. As Bloomberg reports - “Daily movement of trucks has collapsed to less than 10% of normal levels, according to All India Motor Transport Congress, an umbrella body of goods vehicle operators representing about 10 million truckers. Road transport accounts for about 60% of freight traffic in India and 87% of its passenger traffic, according to the Ministry of Road Transport and Highways.” OCI is refocusing its efforts to fully understand where opportunities and bottlenecks are presenting themselves at these challenging times. We are continuing to support all of our partners to make sure that we can be reactive to needs and deliver where we can - such understanding is being proactive revised on a continual basis. OCI remains however poised to respond immediately once markets reopen and are making preparations to do so. For more information on how OCI can support your business and trading, please Contact Us.