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Main container lines face $23bn loss in 2020 under ‘worst case’ scenario

Main container lines face $23bn loss in 2020 under ‘worst case’ scenario
The impact of the novel coronavirus (COVID-19) could cause main carriers to collectively lose a staggering $23bn in 2020 under a “worst case” scenario, according to analyst Sea-Intelligence.

Alan Murphy, ceo of Sea-Intelligence, said carriers may see freight rates decline to the same degree they had experienced during the financial crisis of 2009.

Sea-Intelligence observed that within the past week (week 14), the number of blank deepsea sailings has increased from 45 to 212. The majority of blank sailings are clustered within the coming five to six weeks amid multiple services with cancellations ranging through to the end of June.

The largest capacity withdrawal is seen in the Asia-Europe trade where the market is now entering a four-week period with 29-34% of the capacity having been removed from the market.

For this week (week 15), Asia-Europe’s share of capacity being blanked is projected at 18%, with further forecast of increased blank capacity at 29% for week 16, 34% for week 17 and 18, 30% for week 19, 22% for week 20, 15% for week 21, before dipping below 10% for the weeks until week 25 (mid-June).

“The financial impact on the carriers could also be profound, although the magnitude to a large degree depends on the carriers’ pricing discipline going forward,” Murphy commented.

With the worst case scenario being a collective loss of $23bn in 2020, the most benign scenario on the other hand will see carriers experience a 10% volume decline this year, but manage to prevent any material decline in freight rates.

“In this case their profits will decline by $6bn compared to 2019 and cause all main carriers combined to lose $0.8bn in 2020,” Murphy said.

“It is therefore clear that the primary purpose of the capacity reductions should be seen as an effort to prevent a catastrophic drop in rate levels. The cost savings are also important, as they too are measured in the billions, but pale in comparison to the impact declining rate levels will have,” he added.

Murphy said the development in freight rates will be crucial in the coming weeks as that will determine the degree of capacity reductions.

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