Ocean cargo arena should prepare for COVID-19 aftermath

This time I am here with an article written in an English language by Patrick Burnson in https://www.logisticsmgmt.com/ website.

There is link below this article if you want to reach out for the original page.

Nowadays not only the company I am employed or our country but also the world itself is in big crisis because of a pandemic disease. And as an employee who works in shipping/transportation industry, this global issue drew my attention. First quarter of this years financial datas are gathered and published by many companies to public, but most of them are not published, like my company I work in. But for an abstract information, we have not seen the shocking results of this pandemia yet. But I am sure that, not only our company but also many industry will see traumatic financial datas in upcoming months. And we all see the sharp falls in upcoming graphics which will lead to strict regulations.

Why I said these? Because this article I shared below have some examples of restrictions and some regulations that we can predict near future.

If this article make you to comprehend a tiny piece of global crisis, I would be really happy. Enjoy reading!

Carriers should prepare action plans for supply-side retrenchment across a wide range of demand scenarios in order to maintain an acceptable supply-demand balance.

As our two-part ocean cargo forecast feature has outlined, industry analysts say it’s no easy task to predict the immediate future in the wake of COVID-19.

The baseline demand scenario painted by Drewry’s “Container Forecaster” analysts foresees a demand collapse in the first nine months and recovery from 4Q20.

Even so, Drewry’s global supply-demand index (not adjusted for idle fleet and where a reading below 100 represents over-supply and above 100 equals under-supply) is forecast to fall to its lowest ever mark this year at just 85.8 (annual average).

Not an option

Not doing anything on supply is simply not an option this year, explain analysts.  It is worth looking back to 2009 when the container market suffered its first ever demand contraction to see how carriers responded. Carriers’ survival tactics back then involved suspending around 40 East-West services, leading to around 10% of the fleet being laid up, slow-steaming to absorb capacity and re-routing some Asia-Europe voyages via the Cape of Good Hope to save on canal fees.

The combined measures meant that after a slow start by around mid-2009 carriers had so effectively reduced the amount of available capacity that there were actually space shortages, which drew considerable ire from shippers at the time. 

The “real world” impact was reflected in Drewry’s idle-fleet adjusted supply-demand index, which averaged 97.9 for the year, some nine full points above the standard unadjusted index (88.7).

Drewry expects to see a slightly smaller differential between the two indices in 2020; with the idle fleet adjusted index projected to end the year around 6 points above the unadjusted benchmark at 91.6. 

One reason analysts don’t think the adjusted index will scale the same heights of 2009 is that it is starting from a much weaker position. In 2008 the industry was in rare perfect balance with a standard global supply-demand index reading of 100.1, making it easier to cut the supply cloth accordingly. That is not the situation today. 

The unadjusted index has barely broken past the 90-point mark in the past decade, struggling with sub-90 points reading in the past two years. The idle fleet is already close to the ratio it was in 2009; squeezing more capacity out of the system will be more challenging than a decade ago.

Void sailing notices from carriers for April are coming in thick and fast and while rapidly decreasing fuel costs might tempt carriers to persist with this tactic as the primary defense for a little while longer, the need to preserve cash will soon force lines to suspend loops and park ships up.

Recommendations to stakeholders

Carriers should prepare action plans for supply-side retrenchment across a wide range of demand scenarios in order to maintain an acceptable supply-demand balance. All service plans should be well communicated to customers with as much advance warning as possible in order to maintain business relations when the recovery arrives.

To mitigate the elevated risk of operating losses, lines should consider off-hiring chartered tonnage wherever possible and laying up owned units to preserve cash in the event of a prolonged demand downturn.

Logistics managers, meanwhile, should expect significant service disruptions this year with more blank sailings and very probably a number of service suspensions. 

Shippers, too, should consider adding a few “backup carriers” to their list of vendors if their primary service providers ration capacity or stop loops. Despite the unexpected reduction in fuel costs, shippers prioritizing transit times need to watch out for slower service speeds as some carriers may be tempted to extend round voyages to absorb capacity. 

Drewry Concludes: 

Without any coordinated response, carriers will not always get it right when it comes to vessel deployment. Communication and understanding will be essential to keep the supply chain rolling as smoothly as possible.



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