COVID-19's Impact on the Global Shipping Industry
As you might imagine, COVID-19 is and will continue to have substantial impact on the shipping industry. There are a number of factors contributing to this, and it seems that no segment of the industry is immune from the impact at this point. Even as some countries are opening up, global shipping continues to see major disruptions. There is much uncertainty as to what the next few months will bring, but there are a few indicators of what the coming weeks and months might look like.
Global Container Shipping Volume Declines
As global container shipping volume continues to decline, container lines have been able to keep spot rates elevated by cutting capacity. As of May, global capacity is down 15% year over year, according to maritime analyst Drewry. As the economic damage done by the COVID-19 pandemic continues to drag on, the pressure from declining volumes will only become more severe in coming months. In North America, 71% of the ports witness a 5 to 25% reduction in container vessel calls in week 21, while the world’s average is only around 53% in that same week.
Maersk Line, the world’s largest container carrier, expects global volumes to fall 20 to 25% in the second quarter of 2020, and Hapag-Lloyd also plans for a double-digit decline. In addition to blanking capacity by skipping port calls, container lines have also pulled back on their ship orders. Only about 1.8% of current global fleet capacity will be added this year while capacity is set to expand by 2.3% in 2021 and 3% in 2022.
Case Study: Maersk
To get a better understanding of how this crisis is affecting the shipping industry, it’s helpful to take a closer look at an individual company and how it’s been impacted. Maersk reported an increase in profitability in Q1 of 2020 as volumes fell 3.2% from the same 2019 period. “We are not pursuing market share. We plan to grow slightly less than the market and will do what we can do preserve profitability,” said Maersk Group CEO Soren Skou. Despite the volume decline in Q1, they were able to end the quarter with a profit, in large part due to their strategy of reducing capacity. They are continuing to implement that strategy in Q2 - they had 90 blank sailings in Q1 and could have up to 140 in Q2.
The rest of the year will be volatile and unpredictable. To prepare for this, Maersk is looking at operational plans and working to make necessary adjustments to reduce costs in anticipation of reduced volume and volatility.
Even as some countries reopen, the shipping industry continues to experience substantial disruptions. As always, Clear Freight is here to help you with any logistics questions, concerns, or needs that your business has. Hopefully, things will return to normal sooner rather than later. Until then, we’ll all do our best to deal with the uncertainty and finding innovative solutions. Contact us for support or to let us handle your logistics concerns.