Container shipping lines cancel hundreds of sailings to stem losses as Covid-19 pandemic hits global trade

Container shipping lines cancel hundreds of sailings to stem losses as Covid-19 pandemic hits global trade
Ryan Swift 10 Apr, 2020 https://www.scmp.com/business/companies/article/3079234/container-shippi...

* The number of blanked sailings jumped last week from 45 to 212, according to a report by shipping consultancy Sea-Intelligence
*The Alliance, comprising four container shipping majors, has cancelled 32 scheduled departures this month amid falling demand

Container shipping companies are cancelling sailings and merging routes to cut losses and stay afloat amid a drop in demand and a worsening outlook for global trade because of the Covid-19 pandemic.

The number of “blanked” or cancelled sailings rose last week from 45 to 212, according to a report by shipping consultancy Sea-Intelligence on Monday. The report added that the largest capacity withdrawal was from the Asia-Europe routes, where 29 to 34 per cent of capacity has been removed.

On April 1, The Alliance, comprising the container shipping majors Hapag-Lloyd, Yang Ming, Ocean Express Network and Hyundai Merchant Marine, announced the cancellation of 32 scheduled sailings this month. All except four connected Asia with either Europe or the US, indicating a steep drop in demand for container cargo, which is normally associated with finished products leaving Asia for these markets.

“Taking blanked sailings as a proxy, we believe that there has been a 20 to 30 per cent decline in demand for container transport,” said Andy Lane, director for Southeast Asia at Sea-Intelligence. Blanking sailings can help reduce operating costs and keeping freight rates from falling, but it will still hurt overall revenue.

The World Trade Organisation
said in its outlook on Wednesday that global trade is set to plunge between 13 and 32 per cent this year as the Covid-19 pandemic upends the world economy. The WTO report also warned that estimates of the expected recovery in 2021 were equally uncertain, with outcomes depending significantly on the duration of the outbreak and the effectiveness of policy responses by nations.

The drop in trade and container cargo shipping will hurt Asia's ports as well. The Seaport Alliance, a consortium of operators at Hong Kong's Kwai Tsing container port, reported that container throughput had dropped 11 per cent in the first two months of 2020 already.

Sea-Intelligence noted in its report that shipping companies’ discipline in maintaining rates would be the key to their survival. In a “benign” scenario, shippers’ volume would fall 10 per cent in 2020 without any change in freight rates, leading to overall industry profits declining by US$6 billion compared to 2019. A “worst case” scenario would see freight rates decline to levels seen during the 2009 financial crisis and a combined loss of US$23 billion for carriers this year.

Lane noted that in 2019, the 15 largest container shipping lines collectively posted an operating profit of US$5.9 billion.

“Based on the financial performance of the carriers in 2009 after the 2008 shock waves, the carriers reported a 26 per cent [profit] decline year on year, and if anything close to that were to reoccur in 2020, the losses … would erase combined profits for the last eight years,” said Lane.

Shipping analytics firm Alphaliner said that 338 container ships, representing 9.1 per cent of the global fleet or 2.12 million twenty-foot equivalent units (TEU), were idle at the end of March. However, Alphaliner expects the idled fleet to be over 3 million TEU by May because of a second wave of cancellations.

“Unlike the first wave, which was mainly focused on China, the current wave of cancelled sailings will affect all container shipping routes around the world,” said Tan Hua Joo, a consultant with Alphaliner.

Meanwhile, container shipping analytics firm Drewry on Tuesday announced a new tracking service for cancelled sailings. Han Ning, director for Drewry China, said she expects capacity to drop by 20 to 25 per cent on the Far East- Europe/Mediterranean route, and 17 to 20 per cent on the Far East to US route in the second quarter of this year. The number of cancelled sailings rose 288 per cent in April 2020, compared to April 2019.

Drewry reported that April’s spot freight rates had actually risen 12 per cent against April 2019, suggesting that shipping companies’ efforts to hold up rates was working for now.

Sea-Intelligence’s Lane expected the industry to ride out the current downturn. “Over the last 10 years of what feels like a continuous crisis, the lines have become very effective at right-sizing capacity to match demand,” he said.