Container shipping ‘riding the storm’ of coronavirus

For containerships, the coronavirus impact is fundamentally a question of supply, not demand, observed Adam Kent, managing director of MSI.

“The impact so far effectively amounts to an extension of the Lunar New Year – when even in normal years container trade flows take a hit, freight rates tumble, and factory output takes weeks to return to normal. The coronavirus has turbo-charged these normal seasonal trends,” Kent opined.

“The result is that Chinese factories are operating far below capacity, and with few boxes to load liner companies have implemented an increased programme of blanked sailings,” he said.

Disruption to containerised supply chains and liner company operations has been extensive, indeed, and the longer this lasts, the less the container shipping market will be insulated.

In the event that more workers return to factories and disruption to port operations outside Wuhan are minimised, the impacts on long haul container beyond mid-March will be relatively limited.

Kent argued that the impact is going to be larger on the intra-Asia trades where demand growth will slow significantly in the first quarter. The impact extends to trades where Chinese exports to foreign manufacturers play a key role.

“There is already evidence this is limiting liner company demand for extra tonnage in East Asia, with downside implications for time-charter earnings in the near-term,” he said.

Related:Maersk warns of ‘significant uncertainties’ from coronavirus

So far there has not been a massive impact on the spot freight rates that drive liner company profits, at least beyond normal seasonal trends, he noted.

“Demand for time charter tonnage in the container segment is a derivative of container demand so the longer the disruption goes on, the more likely it is that liner companies will consider redelivering vessels at the earliest possible date or refrain from taking on new tonnage. It’s likely that some of that impact will be felt soon, and certainly within the Far East that there is going to be an increase in the idle fleet of smaller containerships in particular as liner companies take a cautious approach taking on new tonnage,” Kent said.

Read all Seatrade Maritime News coverage on the impact of the coronavirus on shipping