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COVID-19-Caused Capacity Cuts Could Become Permanent

With the coronavirus pandemic still in motion and the US-China trade war ongoing, it’s difficult to predict what’s in store for the future of global trade, but the maritime research experts at Drewry took all the data they could gather and recently published a report that shed some light on what global shippers can expect.

Q2 2020 COVID-19 Impacts on Carriers

In the report, a special note was made of carriers utilizing blank sailings to mitigate the impact of COVID-19-related downturns in demand. In April and May, over 400 sailings were cut with total capacity cuts equal to roughly 10% of the container ship fleet in May and June. These cuts helped to maintain freight rates despite the drop in demand.

The coronavirus also resulted in the largest TEU slump in a decade. A 7.3% downturn of TEU was seen with a total throughput crash of 16% during the height of the COVID-19 outbreak.

Container Forecast for Q3 2020 and Beyond

In a webinar held on July 14, the maritime research experts commented that if the downturn continued, we could see “withdrawal of capacity on a more permanent basis, demolition ramp-up and an end to new builds.”

A spokesperson said 2021 would be a strong year for carriers, who they forecast to generate $7 billion in operating profits. Freight rates are expected to go down in the latter half of 2020, resulting in an overall rate increase of only 3% for the year.

Originally, analysts anticipated a 3.5% compound average growth rate per year through 2024 but “huge downside risks from a larger virus outbreak this year and new outbreaks next” resulted in adjustments being made to the forecasts. Analysts now anticipate negative demand growth this year in the neighborhood of -7% to possibly -12%, depending on further coronavirus outbreaks.

“Next year there is greater uncertainty...”

According to Drewry, there is a greater uncertainty ahead next year with either only a 10% growth or even negative growth. No one can anticipate the outcome of the virus. While it is difficult to forecast future capacity due to the current global climate, we are probably looking at a global container ship capacity rise of 2.6% by the end of 2020 due to “very substantial slippage” of vessel deliveries. Apparently, only 65% of what was anticipated on January 1st will be delivered with roughly 400,000 TEU to be delayed into 2021.

Contact us today and see how one of our logistics consultants can assist you during such uncertain times.

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