COVID-19 and Maritime Industry

(Pic Source: Getty Images)

On the National Maritime Day (5th April), every year the industry champions share their experiences, achievements and forthcoming challenges. However, Black Swan events like the present pandemic brought about by Novel Covid-19 have caught everyone by complete surprise and thrown unprecedented challenges in a very short time span. This brief paper attempts to highlight likely significant impacts of Covid-19 on Maritime Industry not only in terms of structural changes by also a paradigm shift in business practices.

Keep ships moving, ports open and cross border trade flowing

All across the world, industries have made representations to the governments to keep maritime trade moving by allowing commercial ships continued access to ports worldwide and by facilitating the rapid changeover of ships’ crews. Commercial ships not only move the world’s food, energy, raw materials, manufactured goods and components but also vital medical supplies. Proponents of open trade emphasise that in time of global crisis, it is more important than ever to keep supply chains open and to allow maritime trade and cross-border transport to continue. This means keeping the world’s ports open for ship calls and the movement of ships’ crews with as few obstacles as possible. Current situation would make land locked countries in Asia, Africa, Europe and America even more dependent on the sea ports of their neighbouring counties for requirements of food and medical supplies. 

In spite of their best intentions, major Maritime Nations are compelled to initiate and implement restrictive measures, in favour of public health priorities. Since detection of initial cases of Corona virus victims in December 2019, Chinese Government banned ships from entering Port of Wuhan in end January 2020. A number of Cruise Liners soon cancelled their calls to Chinese Ports. In early February, American cruise liner Princess Cruises’ ill-fated Diamond Princess was quarantine off the coast of Japan after one of its passengers tested positive for Corona virus. The ship soon became the place with the highest concentration of cases outside of China. Non-affected passengers were not allowed to leave the ship until 19 February – leaving 621 who tested positive on-board. A number of countries closed their Cruise Terminals. In addition, a number of countries imposed restrictions on cargo ships to enter their ports especially those coming from or transited through Chinese Ports. 

Till February 2020, the impact was that of reduced cargo volume resulting in financial losses for the ship owners/operators. The losses on account of reduced cargo were estimated to be US$350million per week. To some extent, the ship owners / operators could deal with this problem through a number of counter measures like Blanked sailings, ships taking longer route via Cape of Good Hope avoiding payment of Suez Canal dues.  Ship owners / operators continue these cost cutting measures even at the quality of service which no longer remains the top priority. Sailing schedules are no longer practiced.

In early March, corona virus spread beyond Asia and was detected in Europe, resulting in WHO to declare COVID-19 a pandemic. Since then, almost all International events are cancelled and policy – making apex bodies of Maritime Trade have postponed their meetings.   

All three main segments of shipping – Dry Bulk, Liquid Bulk and Containers began to feel the adverse effects of restricted movements. As the countries started to seal their boarders, ships’ crew are unable to sign off even after completion of their contractual periods and forced to continue sailing on the ships. The ICS and the International Transport Workers’ Federation sent an open letter to UN bodies that read: “In this time of global crisis, it is more important than ever to keep supply chains open and maritime trade and transport moving. In particular, this means keeping the world’s ports open for calls by visiting commercial ships, and facilitating crew changes and the movement of ships’ crews with as few obstacles as possible.” Despite the best of efforts and intentions, authorities are placed in a Catch-22 situation created by COVID-19.

Corona virus outbreak has disrupted the shipping industry as ports impose restrictions.

• Shipping Markets

The rapid spread of corona virus has had a major impact on global shipping markets, with the slump in demand for goods from China having a ripple effect on everything from container ships to oil tankers. Time Charter Earning (TCE) is the best indicator of current market scenario in shipping. Spot Container freight rates have dropped from January to March 2020 and to some extent stabilized in April 2020. Different segments of Shipping have felt varying degrees of impact due to Corona virus pandemic. Most significant and dramatic of these is the market for VLCC. 

Spot Rates for Very Large Crude Carriers have gone up eight times in one month. In first week of March 2020, the rate was $30,000/day and in first week of April 2020, the rate has gone up to $200-250,000/day. This large rate increase is caused by a combination of factors:

o Increased chartering Volume – more than 100 additional ships compared to earlier

o Reduced demand for crude oil due to adverse economic effects of Covid-10

o Extra supply of oil in the market by Saudi and Russia

o Extremely high level of Oil Contago

These factors have resulted in unprecedented demand for storage of liquid cargo space. Liquid storage tanks all over the world – Singapore, UAE and all India Ports are fully booked and occupied. Storage space on shore in not available at any level of store rent. Traders are therefore using ships as floating storage. This market scenario is likely to remain for next few months as new storage capacities will not be ready due to labour shortage on account of lock downs. Meantime, with negative oil pricing; some ship-owners dream of being paid by the bunker suppliers to buy fuel for their ships. 

Storage Tank Operators with partially ready tanks would do well to complete and make the tanks available and operational under this market condition.

In Dry Bulk Cargo segment, the Capesize ships TCE fell to $2,000/day in early March which has regained to $6,000/day in April due to recovery in demand from Korea and Japan.

• Maritime Services and CRM

Most of the Ports and Terminals have declared Force Majeure in order to protect their legal positions against potential liabilities, similar trend is also found among the buyers and importers. The suppliers are caught in a precarious situation having made the shipments and buyers declaring inability to pay under Force Majeure situation. The ships are either in transit or waiting at the destination ports awaiting instructions about cargo discharge. As the receivers are not able to make payment / receive delivery; the onus goes back to suppliers. In a few rare instances, the suppliers may abandon their cargo, in most cases, the value is much more and hence the suppliers decide to get their cargo unloaded and hold the same at a convenient transit point. The cargo held in such a transit point to be delivered as and when the demand revives. Many such cases are found in case of bulk liquid and dry cargo as well as containers. Container shipping companies like MSC have started offering such transit storage facility wherein they would discharge and hold these containers at transhipment ports for a period of time. Similarly CMA-CGM have started routing their ships via Cape of Good Hope instead of Suez Canal. This increases the transit time of the ships and thereby delays arrival of containers proving additional time to the receivers to clear their consignments.

A number of ports and CFS service providers are providing additional storage facility to cope with the problem. 

This is also a great opportunity for Tank Storage operators to establish direct contact with the suppliers who are looking for tank storage space for their bulk liquid cargo.

Current pandemic offers a great opportunity to all Maritime service providers to strengthen their Customer Relation Management (CRM) efforts.

It is also estimated that investment in freight technologies and digital advancement in Maritime industry will increase. More emphasis on automation of ports, terminals and transport infrastructure would help in future working for better resilience in addition to efficiency and cost benefits.

If the Covid-19 pandemic spread continues unabated a super great depression is predicted where the most significant aspect of the maritime business will be The Customer Relation Management.

About the Author

Prof. Mukesh Parikh, 

Adjunct Professor – Center for Transportation

Professional Shipping - Norwegian Shipping Academy, Oslo

Mr. Mukesh Parikh is a trainer and consultant for Global Maritime, Logistics and Supply chain Industry with over 40 years hands on Industry experience. First half of his career was in Commercial Shipping, while the second half is in Ports & Terminals and Logistics Industry. During his career with The SCI, he was trained as an Instructor by UNCTAD. As a trained instructor, he was actively involved in Training through an UNCTAD+UNDP project TRAINMAR. In 1997, he joined The Adani Group in Senior Management position from the inception stage of Mundra Port and made a major contribution to set up Business Development and Marketing team as well as prepare Standard Operating Procedures for the entire spectrum of Operations in the port.