COVID-19: bleak outlook for global demand

Maritime News Uncategorized

Sea-Intelligence has just released issue 455 of the weekly analytical Sunday Spotlight newsletter and given the current global developments, the sole focus of the entire issue is on the impact of the Coronavirus pandemic in combination with the ongoing oil price war.

COVID-19 brings short-term leases and logistics jobs up

Whilst these are trying times for the industry, and it is tempting to start to look for positive news in order to garner some hope, the current developments indicate that the worst is ahead of us.

Last week’s assessment of a worst-case scenario of 10% demand decline – equal to 17 Million TEU – unfortunately moved closer to reality. Economists at Goldman Sachs are now forecasting a staggering 24% decline in US GDP in 2020-Q2.

We also have US business inventories being 10% larger than just before the financial crisis when they are compared to the magnitude of sales – and during the financial crisis, inventories were reduced by 18%.

On top of that we are seeing restrictions implemented in ports, with a few even banning vessels if they have been in virus affected countries or shutting down temporarily when they find workers who have tested positive for the virus.

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More problems

Adding to the woes of the pandemic, the industry also has an oil price war to contend with. On the positive side this drastically lowers carriers’ costs as well as generates a positive cash flow effect. However, it also seriously undermines the investment case for scrubbers – we have seen the low-Sulphur premium drop from a peak around 300 USD/ton at the start of the year down to 60 USD/ton.

At the same time, scrubber installations are seriously delayed in China due to the virus.

The consequence might well be that vessels which were otherwise planned to go for scrubber installation instead re-enter the operational fleet. This would add more capacity to a situation where demand is about to drop sharply.

#Covid19 #freight #demand #logistics

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