Moving forward, a potential resurgence of COVID-19, and containment, are the biggest challenges for the logistics sector and global trade as recently demonstrated by a breakout of COVID-19 cases onboard the Mediterranean Shipping Company (MSC) container ship Flavia, following a crew change.
Though Flavia may be a small breakout, it is symptomatic of what the new future holds and reflects the challenges the industry now faces. Moody's downgraded its forecast for the shipping industry this year and expects that earnings will contract by as much as 18% compared with 2019. Maria Maslovsky, Vice President and Senior Analyst at Moody's confirmed: "we now expect the aggregate EBITDA of rated shipping companies to fall by around 16%-18% in 2020, nearly doubling from our previous projection of a drop of around 6%-10%." Moody's further cautioned that while some carriers have adjusted to meet initial demand and some freights on core routes have performed well, carriers could be challenged by subsequent waves of COVID-19 infections. COVID-19 breakouts within a crew, have created unusual circumstances where owners have been unable to conduct crew changes on the vessel's destined trade route. The new BIMCO COVID-19 Crew Change Clause for Time Charter Parties demonstrates a shift in industry attitude, where traditionally the cost of crew changes was borne by the owners under a charter party agreement. BIMCO's new clause provides owners with the flexibility to deviate from a route, if unable to change its crew at the place ordered by the charterers. It also provides an option for charterers to contribute to the crew change, in recognition of escalated costs when making a COVID-19 related crew change.
Port activity continues to serve as a measure of COVID-19's impact on global trade. The Port of Antwerp reported declines in traffic and volume, impacted by blank sailings, no sailing or cancelled sailings. During the first half of 2020, Antwerp recorded nearly 8% decline in the total gross tonnage. Despite this, port officials are optimistic of recovery in the European economy. As indicated by Jacques Vandermeiren, CEO Port of Antwerp, diversification is key: “the Port of Antwerp is holding up well in the Hamburg-Le Havre range because it is active in many sectors, it is not dependent on a single continent and because of its role as Europe's largest integrated chemical cluster." That said, 2020 has seen a decline across most operational sectors at the Port of Antwerp. Container volume was the most robust sector, with strong volumes in pharmaceutical products, e-commerce, and health foods. The breakbulk sector was affected by global trade issues, reducing in and outbound traffic by nearly 30%. Further, roll on/roll off vessels declined by more than 20% due to the change in demand for European and Asian cars. Contrary to market reports that many sectors within the shipping industry are suffering, a new market analysis released by BIMCO indicated the Suez Canal remained resilient to the pandemic.
Global commercial flights, which previously carried a substantial amount of freight, were down by nearly three quarters (‑74%) between 5 January and 18 April, and through mid-Jun have risen 58% (as reported by the World Trade Organisation (WTO)).
In terms of air cargo, the first signs of structural recovery were observed in June. As PPE demand faded, June's volumes indicated market recovery according to CLIVE Data Services. The air freight industry was showing signs of slow recovery as volumes in June climbed by 6%, versus the full four weeks of May. CLIVE Data Services reported that available capacity remained flat, but the last two weeks of June saw it increase by around 1.5% per week. Managing director Niall van de Wouw said CLIVE Data Services' latest analysis “will help address industry concerns over the distorted state of the air cargo market.”
While commercial air travel recovers to pre-pandemic levels, if it ever does, specialist freight capacity within the UK may become vital. The UK’s Department for Transport has recently granted permission for Manston Airport to be transformed into an international airfreight hub. RiverOak Strategic Partners (RPS), the project developer, announced that construction would begin in 2021, with cargo services expected in the first quarter of 2023. RPS added that the COVID-19 outbreak had “demonstrated the fragility and inflexibility of the UK’s air cargo network”, as it relied almost “exclusively on passenger aircraft to carry freight”. Other trends show commercial liners being commission as improvised freighters.
The WTO announced last month that after rapid government responses, the contraction of world trade was unlikely to reach the worst-case scenario as projected in April (that global trade in goods would fall between 13% and 32% in 2020). The WTO confirmed that trade would only need to grow by 2.5% per quarter for the remainder of the year to meet the more optimistic projection. However, trade restrictions, a resurgence of COVID-19 outbreaks, and a weaker than expected economy could affect this projection. A stronger rebound in trade is likely if the pandemic is a one-time shock, with limited outbreaks, which increase business and consumer confidence. Trade may be affected if companies seek to rely on more domestic suppliers or increase stocks. Further, protectionist moves on the global stage, may also affect trade tensions, and cause a slower than anticipated growth.
There is no doubt that sustainability has become fundamental for not just the consumer, but also brands. In turn, brands expect that their supply chain will commit and follow their sustainability policies. Market research suggests that COVID-19 has negatively impacted global sustainability initiatives. Though regrettable, it is perhaps understandable, given that the altered workforce, shocked supply chains, and forced commercial agility has pushed some businesses into survival mode.
In conclusion, the outlook for the global economy looks uncertain, and GDP forecasts look increasingly negative. That said, the WTO and other international organisations' GDP estimates imply a less negative trade reaction in response to declining GDP than that of the financial crisis of 2008–2009. The pessimism and doomsday depictions of Mid-March 2020 may well have been over exaggerations with trading and shipping activity likely to rise quicker than initially anticipated. It is suggested that the speed in which fiscal policies responded to the pandemic were on a swifter, more effective and larger scale than those observed in 2008–2009. Finally, consumer attitudes and the expectation that the pandemic would eventually ease may have kept consumption at a higher than expected level and a return to shipping volumes characteristic of the second half of 2019 re not far off.