As the global pandemic continues to spread in certain parts of the world, Europe as a whole is pushing to get back to some sort of normality with lock down measures easing and trade gradually opening up.
So, what is the landscape and key considerations for cargo owners as they look to gauge the economic outlook and reshape their supply chains in line with current demand & expected future upturn.
The logistics industry has of course like the vast majority of industries been rocked by COVID-19 and the effects have been felt from the very start. For the world’s main carriers, the Asia Europe trade lane is core and the main stay for many, fundamental to operations and impacts container positioning on a global scale.
From the early part of the year the downturn began, firstly with Chinese New Year then compounded by lock down measures introduced to prevent the spread of the virus. Container through put plummeted as a result for weeks and just as China emerged from lock down the carriers were then faced with large parts of Europe closing down as Countries one by one began their own battle with the virus.
Early reports are suggesting they could be facing a £23 billion loss collectively in 2020 with the majority posting negative result already for Q1 which in comparison to Q2 will have been pretty good, so the outlook is not great.
Moody’s said in a ratings update back in April “Given the rapid and widening spread of the coronavirus outbreak and the deteriorating global economic outlook, there’s a downside risk that the earnings before interest, taxes, depreciation, and amortization (EBITDA) of shipping companies globally could decline by 25 to 30 percent, similar to levels last seen in 2016 when Hanjin Shipping went bankrupt in one of the largest recent failures in the sector,”.
The rumour mill continues, with some showing worrying financials and again in recent weeks state aid has been the cry with some of the largest carriers securing support in the way of bail outs and loans, a short term fix but not a sustainable future.
Evergreen and Yang Ming look set to agree $450 million state loan
CMA have already secured £1 billion state loan
Hyundai over $500m
The real issue being how long this will last and if it is enough to plug the holes!
Carriers have moved quickly though to idle vessels, which up until a few weeks ago, was at the highest level on record, at close to 2million TEU laid up, the 2M with the lion’s share of this at 845,000 TEU.
Coupled with this, blank sailings and a discipline to maintain rate levels ahead of the temptation to grab market share have seen some analysts paint a more encouraging picture for carriers in recent weeks with loses estimated between $7-15 billion if these behaviors are maintained. That how ever is a pretty big if and still represents significant loses.
While carriers continue to deploy measures to mitigate the financial damage being felt from COVID-19, service integrity & reliability will of course be second in their thinking. Slow steaming, blank sailings, port omissions & blank sailings will all have negative impact on service delivery but given the position can only be expected.
So for cargo owners consideration must be given to;
Planning and forecasting, work with your partners in advance to give visibility of planned orders and required dates.
Contingency in terms of transit, traditional & published times are estimates at the best of times but with such widespread blank sailings and capacity out of the market, disruption and delay should be expected.
Alternatives, be prepared to look at alternative modes, consult with your logistics partners to find alternatives to traditional routing where needed. There are many different options if the need outweighs the additional cost.
Worth noting also, carriers themselves are pulling in credit terms to mitigate risk and protect cash flow as reported in loadstar. https://theloadstar.com/shipping-lines-tighten-up-credit-terms-for-financially-risky-nvoccs/.
So, choose your partners wisely, if their credit is cut off or limited with carriers, they too may struggle to meet financial obligations which can leave your cargo stranded and unavailable for delivery.
John Good Logistics have full AEO Accreditation so are seen as a safe and secure partner in terms of security & credit within any supply chain.
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