Covid-19: Real Economic Impact Yet To Come
Updated: Mar 26
It will take time for the real economic impact of Covid-19 to be felt. In an interview with The Logistics Point Lars Jensen, CEO at SeaIntelligence Consulting, explains why business-as-usual won’t change much after the outbreak is gone.
‘We are seeing conflicting things happening on the market,’ says Lars Jensen, CEO at SeaIntelligence Consulting.
There is a drop in export capacity in Europe and North America which is not caused by the pandemic, but is more related to what happened in China six weeks ago. Ships from China to the West are being full again because the country is slowly lifting up the lockdown and responding to orders that were sent 3-4 weeks ago.
According to Jensen we cannot see what the real effect of the pandemic in Europe is as it will take time for factories and orders to slow down. A number of large importers have announced they are cancelling orders. The impact will come at a later stage as more companies follow. ‘We expect to see sailings being cancelled everywhere across the globe,’ explains Jensen.
The lockdown has two effects. One is consumers’ spending that is expected to drop significantly as people stay at home and are worried they might lose their jobs. Secondly, businesses are likely to sharply stop placing new orders because demand is slowing down. CEO’s will have to ask themselves how confident they are that consumers will shop in the coming weeks so they can order goods.
‘All orders, except for the necessities that businesses know they will need, will be stopped,’ says Jensen.
Inventory levels in the USA are larger than what they were just before the financial crisis in 2008. This will additionally hit demand rapidly.
Jensen is not convinced that the world economy will be able to recover as quickly as many hope. ‘The belief that consumers will go back to their usual habits in two months' time sounds highly optimistic,’ continues the expert. Additionally retailers will also have to be sure they will see quick recovery and good Christmas spendings. Unfortunately, it is unlikely that will happen.
All predictions could be thrown out of the window. The current crisis is getting to a point where it could turn to be worse than the financial one. In 2009 there was a global 10% drop in container volumes. Jensen believes it is possible to see the same caused by the coronavirus.
In the beginning of the year it was expected that demand will grow by 2-3%.
The oil price war is not helping either and could have been the main topic was it not for the virus.
Change not in the air
Jensen doesn’t think much will change after the crisis is finished. He points at what happened after September 11 and the financial crash.
‘Every time there is a major event there is the instinct to say that things will change forever,’ says Jensen and adds: ‘Usually that is not what happens.’
What is likely to happen is to accelerate trends that were already there. One will be more digitalisation. Another one will see the supply chain expanding into more locations to serve as a safety net. Jensen thinks that many producers could move from China and that some parts will be near-shored. Nothing will happen overnight and they are not a direct consequence of the virus. China was already going to have some financial troubles.
‘The challenge is that the tradewar is still there,’ says Jensen. The main part of the conflict was driven by the USA and the oil price wars will make matters worse. Shale Oil producers in the US will be the hardest hit. It will attract political attention as well, as many states that rely on shale oil production are harlands for president Trump.
Environment and Virus
Jensen thinks that the virus would delay the fight against climate change as governments and people will prioritise the need for economic recovery.
The topic will resurface once things get back to normal.
According to the expert we can be optimistic about the future because the world has always managed to get out of crisis. It is unclear how long it will take to deal with the virus and on that will depend when the world could expect good news. For governments Jensen wants to see them support healthy companies as if they go bankrupt it will be hard to start from scratch.