International cargo shipping has seen a boost in volumes and profitability over the last quarter
1 July 2020 | Toby Thomas (Image: Cameron Venti)
The disruption to supply lines caused by the COVID-19 pandemic profoundly impacted global commerce in the first quarter of this calendar year. As industries such as aviation and manufacturing have been crippled by the virus, shipping has shown great resilience.
Despite a lethargic start to the year, recent financial results from global cargo shipping leaders indicate that the sea freight industry appears to be remaining resilient to the coronavirus supply shock.
This is a welcome sight for Australia’s export-dependent economy, whose overall competitiveness continues to benefit from COVID-19 supply chain issues facing countries such as Brazil.
Shipping industry making headway?
The COVID-19 pandemic has been responsible for creating chaos in the cargo shipping industry. In extreme cases this has resulted in ‘blank sailing’ – occurring when a scheduled sailing is cancelled, forcing a vessel to skip a port or abandon certain routes.
A total of 133 blank sailings between Asia and the US West Coast have been reported in 2020 thus far.
As the pandemic firstly immobilised Chinese ports and subsequently affected European and American routes alike as the virus spread, the shipping industry has been facing continuing uncertainty.
Logistics provider DHL is anticipating a decline of 14% for containerised trade this year, the largest year-on-year decline on record. This short-term hit aside, however, DHL sees the overall recovery of the shipping trade restoring to pre-COVID volumes by 2022.
The Ocean Freight Market Update is further expecting the opening up of further trade routes and lowering incidences of blank sailings.
This view Is in alignment with Danish shipping leader Maersk, the latest company to be raising expectations for the second quarter of 2020.
The company had initially forecasted that freight volumes would decline by 20-25% in Q2 due to supply chain disruptions caused by the pandemic. This revised outlook is anticipating a smaller decline of 15-18% in Q2 with earnings before tax expected to improve relative to last quarter’s USD$1.5bn result.
Competitors CMA CGM and Hapag-Lloyd both likewise saw a decline in volumes over the last quarter. Notwithstanding this, however, both are confident in a stronger performance for Q2 as freight activity appears to be recovering.
At this stage, Hapag-Lloyd remains the only international shipping company committing to achieving its full-year earnings estimate for FY20.
Implications for Australian exports
A resurgence in commercial shipping is largely beneficial to expediating Australia’s economic recovery from COVID-19.
As Australia’s economy is one that predominantly relies on bulk commodity exports, led by iron ore, coal and gas. The revival of global shipping activity in Q2 2020 is a sign that export supply chains are not suffering the major disruptions seen elsewhere in the economy.
Iron ore is Australia’s largest source of export revenue, accounting for A$63 billion in 2017 alone. Moreover, shipments of iron ore from Australia totalled 828 million tonnes in the same year.
Of further benefit is that iron ore competitor Brazil is facing intensified supply issues and constrained exporting due to the coronavirus shutdown.
A COVID-19 outbreak at three of Brazil’s mines in June forced the prolonged closure of the mines, sending the iron ore price up to above $100 per tonne. Australia’s iron ore production has been relatively unaffected by COVID-19. Western Australia where most of the nation’s iron-ore is mined has very low rates of coronavirus infection, while the major mine operators had protocols in place to deal with infectious diseases prior to the global outbreak of this pandemic.
