Coronavirus (Covid-19) effect on Shipping
Get YouTube Video on this at the end
Before jumping into the effects of this pandemic on shipping. Let us first understand by the words of WHO,What is it?
What is Coronavirus?
Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19.
What is Covid-19?
COVID-19 is the infectious disease caused by the most recently discovered coronavirus. This new virus and disease were unknown before the outbreak began in Wuhan, China, in December 2019.
Covid-19 effect on shipping
First of all we should know, Shipping is a Derived Demand.
What does that mean?
Derived demand is a sort of demand for a service or goods that depends on the demands for the outputs – so in the case of shipping demand, it depends on demand in the world for the goods being shipped (e.g. as demand for grain trade increases, so demand for shipping grows with it).
Shipping is a derived demand, which means that shipping as an industry depending on people who are willing to trade by sea using ships. The efficiency of it stimulates sea trade and even though there are numerous factors that have their effect on shipping, ultimately it reacts to demand and therefore grows in proportion with world trade.
The demand for sea borne trade is influenced by the 5 factors listed below, as Martin Stopford suggests (Stopford, 1991):
The world economy
Seaborne commodity trades
Here, at this moment Shipping(or World) has been effected by a pandemic which isn’t the first time and not even the last time but nevertheless no one ever thought something like this will happen and that too within few months.
The China from which Covid-19 is originated and is 2nd most powerful Economy of the World and this is the reason why immense crisis is going on all over the world.
Previously when SARS was occured from the same country the world wasn’t affected much because that time China wasn’t so big and prosperous country what it is now.
The effects of Covid-19 have started to have a negative impact on a number of shipping related industries and markets from dry bulk market to the tanker and from ship repair company in china to the crew training institution on Philliphines.
In it’s latest weekly report, Shipbroker intermodal said that the Coronavirus outbreak is expected to negatively effect the global economy by at least EUR400bn this year, representing around the 0.4% of global GDP. The degree of impact on different economy is different, with some countries looking impact on some few industries only.
The Industry which will effect most of the country will be of Tourism Industry
The Share Market of Major economic Countries has been crashed.
Effect on Baltic Dry Index
The Baltic Dry Index has dropped to its lowest point in four years time as a result of the coronavirus, IMO 2020 and seasonality. The index currently stands at 487 points, down more than 1,100 points in comparison with the beginning of December last year.
The last time the Baltic Dry Index dove below 500 points was in February 2016, arguably the toughest year for shipping since the start of the millennium. The Baltic Cape Index for Capesize dry bulk vessels was down to just one index point on January 30th.
“IMO 2020 takes it toll, alongside the coronavirus and seasonality”, comments BIMCO’s chief shipping analyst Peter Sand on Twitter. “Ships with scrubbers are capable of running an almost profitable freight rate, but since the Baltic Dry index considers only ships without a scrubber, high fuel costs are really bringing down index readings and Time Charter Equivalents”, he adds.
Steel and metals
The multipurpose shipping industry will also be impacted as steel volumes, an important base cargo for project carriers, will likely be affected too. On one hand, steel production will suffer from the extended Lunar New Year break in China, while on the other hand, the iron ore supply to the mills could be disrupted by slower port operations. According to S&P Platts, mills relying on trucks for their supplies have already said they may face raw materials shortages by the second half of February.
The emergence of the virus during the Chinese holidays could prove to be a silver lining “as seasonally slow demand in China may absorb much of its downside impact on the metals markets”, states S&P Platts. Nonetheless, the analyst firm says “it is already certain to result in a weaker-than-usual first quarter.”
Effect on Oil Market
Since January, the spread of the coronavirus has sent global stock markets tumbling and reversed nearly all the positive momentum in oil prices over the past four months, doubling down on a pessimistic oil demand outlook despite numerous short-term risks to supply. As the virus spreads beyond Asia, the oil market will continue to suffer losses, but the question remains: how deep and for how long?
Coronavirus affects the oil market in two ways. First, travel restrictions due to containment efforts limit the use of jet fuel, and supply chains slow and industrial activity declines as companies send workers home—meaning less oil and oil-based products are being used and produced. This has very direct effects on oil consumption and informs near-term calculations of real oil demand. Second, the stock market reaction to the effect of the coronavirus on the global economy builds a projection of global oil demand over the long-term. As broader market sentiment about the health of the global economy declines, so do projections about the future oil demand curve, prompting flight away from oil and energy stocks and further drawing down prices.
Effect on Seafarers
The coronavirus has led to increasing restrictions on crew disembarkment, with some Chinese shipmanagers not expecting to change seafarers until mid-March.
Seafarers on board are not only being troubled by overtime work, but also difficulties of getting provisions, while at the same time those on standby on shore are worried about delays to embarkment and a halt of income.
Be safe Be aware