COVID-19: BIMCO AND OTHER VIEWS
Marino World is grateful to Rasmus Nord Jorgensen (BIMCO Communications Director) for furnishing the maritime market analyses of the global impact of the 2019 NovelCorona virus Acute Respiratory Disease (2019-Ncov ARD) by Peter Sand, Chief Shipping market analyst of the Baltic Intl Maritime Council.
Not-for-profit, BIMCO is the largest shipping association in 120 countries carrying 58% of the world vessel tonnage. It is composed of principals, operators, managers, brokers and agents.
The study focused on three main sectors: container shipping, dry bulk and tankers.
Analyst Sand accepts the iconic, “we all catch the flu.” He says this holds true for the commercial shipping markets heavily reliant upon China, both on the import and export side.
He notes virus spread coincides with the Chinese Lunar New Year (CNY), which marks the traditional low season for shipping markets. Thus, the virus’ knock-on effects have been hard to single out so far with next to no hard facts and figures to substantiate.
However, it does remain abundantly clear that an extended shutdown of China will temporarily cripple the shipping markets and hit hard on freight rates.
Every week that China remains “closed” will mark a slowdown of economic growth. Seaborne trade is closely linked to economics in Asia and effects are already felt in different ways.
Even yet in the early stages, it is evident this health crisis will put a drag on Chinese economic growth in the first quarter of 2020, potentially taking a toll on annual GDP growth.
Consumer spending has dipped and this cannot necessarily be made up for once the virus has been contained. The lock down of large parts of the transport system has limited the consumption of oil, and refiners have cut crudes runs across the board. Demand lost because of this is unlikely to return to boost shipping demand after the crisis is over.
“Advanced Economies’ imports of manufactured goods from China remains the main driver of container shipping with seven out of the ten largest container ports located in China. Wide-spread factory shutdowns results in a slowdown of manufacturing and industrial production.
The intra-Asian container shipping market, the largest in the world, will be the first trades to feel the fallout from the coronavirus if intra-Asian supply chains are disrupted. Secondly, the long-haul trades to North America and Europe will be affected.”
Extended cancellations by global liner companies have been the first measure taken to ease the pressure of low demand. But if goods are not produced at all, the short-term alternatives do not exist. Medium term alternatives will rise fast though, meaning alternative producers of the goods, just as we have seen as an effect of the ongoing trade war between the US and China.
For one, the Baltic Exchange Capesize Index (BCI) registers minus 133, the first time ever --- and on a continuous free-fall, acerbated by seasonality, IMO 2020, Chinese New Year, flooding in Brazil and the outbreak of the coronavirus.
The Chinese government has rolled out fiscal stimuli to combat the economic impact from the coronavirus. If judged by the share prices on the stock exchange, it’s working. But it is not limiting the spread of the virus nor is it boosting shipping demand at present.
A few countries have already started to implement measures to curb the virus. On 3 February 2020, Australia introduced a 14-day limit for port calls in mainland China and Australia, de-facto quarantining seafarers onboard the ships. Singapore have since then followed suit.
The virus illustrates just how dependent the world has become upon China on the supply chains. Anecdotal evidence suggests South Korean car manufacturers have started to reduce output due to supply shortage of Chinese goods.
Dry bulk shipping rates have extended its rout over the past two months, driven largely by seasonality and the newly implemented IMO2020 Sulphur Regulation, which has sent fuel oil costs soaring. Chinese imports of dry bulk commodities are the main driver for the dry bulk market and with a slowdown of industrial production in the short-term, the outlook for Q1-2020 is not shaping up particularly well.
Freight rates will stay low, until Chinese merchants get back into the market for the usual commodities, such as grain, coal and iron ore.
The traditional dry bulk low season is usually in Q1, and the market tends to rebound post-CNY. Yet, with the coronavirus not under control yet, the slump will inevitably be protracted.
Newbuildings, retrofits, tankers.
China also holds a significant share of global shipyard industry. Data on newbuilt deliveries for January 2020, do not seem to be impacted but BIMCO expects to see an effect. This goes also for retrofits of scrubbers, ballast water treatments systems.
Tanker shipping has certainly felt the heat in the past week, partly from the virus, but also with the lifting of US sanctions for a lot of Chinese-owned oil tankers. Much oil tanker business is carried out in the spot market and freight rates have already seen substantial changes.
China is the largest crude oil importer, with a staggering 506 million tonnes imported in 2019. Her shutdown will bring with it a transitory slump of crude oil imports and accompanying refinery cuts in run rates.
Such cuts have already been taking place in extent to the seasonal CNY cuts of crude runs.
The market turned ugly in a single month: VLCC earnings from the Middle East Gulf to China has dropped from US$03,274 per day on 3 January to US$18,351 on 3 February 2020.
The outbreak has sent oil prices on a rapid decline over the past month. The New York Times had published that the Organization of the Petroleum Exporting Countries (OPEC) is scheduling an emergency meeting in February to discuss production cuts to establish a floor on prices.
Last January 15th, US and China signed the “Phase One” the trade agreement, China pledges to buy from the US an additional US$200-billion over a two-year period where a lot of energy and agricultural products will be seaborne. Questionable by itself, the virus outbreak could be an additional hindrance to this Chinese pledge.
White House economic adviser Larry Kudlow has said that the “export boom” of US commodities will be delayed as a result of the virus.
As it spreads, it is difficult to forecast the medium to long-term implications. But the short-term consequences are clear: demand and freight rates are dropping.
With past epidemics, the markets have rebounded sharply in a matter of months. But, how long will China stay locked down in a quarantine?
The World Health Organization (WHO) sees the virus as a major concern but not a global threat, not yet. The global mass hysteria, basically rooted on ignorance, brings to mind the words of then British Prime Minister Winston Churchill when German rockets were devastating London: we have nothing to fear but fear itself.
Some observers point out that judged from a ratio of mortality, the Middle East Respiratory Syndrome (MERS, a.k.a. Camel Flu) caused more deaths but is now past memory by the public; in turn, so miniscule compared to the bubonic plague that killed one-third of Europe in the 14th century --- more so that today’s population is a lot bigger than then.
But by ratio, it is staggering that 90% of Hebei Province has five million deaths in 1338, suspected to start from Lake Issyk-Kul in Central Asia, China.
It was caused by yersinia pestis, transmitted by fleas eaten by rats and squirrels then biting humans. Travel on ships and caravans on the Silk Road spread it all over Asia, Europe, to the Mediterranean.
As now known, plagues are of three types: bubonic (in the lymph nodes), septicemic (in the blood) and pneumonic ((in the lungs).
To inspire Christians, Pope Clement survived the plague by daily being between fires in the dead of summer, as his doctors prescribed to avoid being bitten by the carriers. The curse came to pass, even without solid solutions (which health authorities now suggest the pandemic was merely due to a lack of Vitamin B).
But what is taken for granted today it that the plague is not completely eliminated. The United States has 7 cases (Arizona, Colorado and California) just as there are cases in the African Congo, Madagascar, India and Peru.
The Maritime Industry Authority (MARINA) issued Advisory 2020-07, guidance on Filipino seafarers onboard vessel affected by restrictions due the 2019-nCov ARD.
Its Circular 2011-02 allowed dispensation permits for those unable to renew STCW certificates for being quarantined onboard on written statement by the Master.
The Ports Authority (PPA) adopted stringent measures, stressed by GManager Jay Daniel R. Santiago and “… in close coordination with Customs, Immigration, Quarantine and Security vessel boarding teams so that essential information that may need swift action could be provided to the ground personnel.”
The nCoV Malasakit HelpDesk was organized using digital and traditional visual advisories on how to prevent or avoid contraction of the virus; particularly in ports with high concentration of passengers and tourists which include North Harbor, Batangas, Mindoro, Bohol, Davao, Palawan, Zamboanga, Bicol.
But the Bureau of Quarantine (BoQ) has exempted all cargo ships from the required 14-day quarantine as strongly advised by PPA and the Dept of Trade and Industry (DTI) as “…it will gravely impact our supply chain.”
On the average, there are 29 ship arrivals a week. Some 83% of the 29 come from China, Hong Kong, and Taiwan. DTI Secretary Ramon M. Lopez clarified that the exemption refers to the cargo containers, not the crew who may not be allowed to disembark.
This is in the PPA protocol, extending to cruise ships if the last port of embarkation is China, Hong Kong, Macau, and Taiwan.
Cebu Governor Gwen Garcia issued an executive order all foreign vessels that have visited China and its administrative regions 14 days before arriving here shall also not be allowed to immediately dock at any of the more than 30 public and private ports of the province.
Incoming vessels would be anchored away, the crew inspected by a quarantine team, and when cleared allowed to dock to load and unload cargoes.
No crew member shall be allowed to disembark; no person allowed to board aside from the quarantine team.
The governor has asked the National Police (PNP) and the Coast Guard (PCG) to help in the monitoring of the docked ships to prevent unauthorized boarding and disembarkation.
A Senate Committee hearing practically revealed “failure of leadership” on the part of the lead person, the Secretary of the Dept. of Health (DOH), for miserably failing to identify and trace the fellow passengers of the patients under investigation (PUIs).
The lame excuse is that the carriers refuse to cooperate which the latter denied; in turn, such needed information available at the Bureau of Immigration, more efficiently traced by the larger police force rather than inexperienced and fewer epidemiologists of DOH.
DOH is always quick to reassure readiness, it is not credible on its reach to implementing units (like 14 regions, public and private institutions). The Secretary is more prone on giving out interviews than double-checking data, adherence and facilities.
A case in point is the quarantine alternative at Fort Magsaysay, Nueva Ecija, a 10,000-bed for rehabilitation donated by China for confirmed drug addicts.
The Secretary claimed it is ready to accept returning overseas workers and any number of PUIs. But when President Duterte himself learned piped-in water is not even available there, the Secretary was quick to point, as alternative, the Athlete Village at Clark City used during the recent Asean Games hosted by the Philippines.
Led by local elected officials, residents protested against locating the quarantine facility in their town. The agitation was diffused when the Dept. of Local Government took a very stern position the town cannot override the emergency and critical response of the national government.
Leveling up from just the mundane to epiphany, Nature renews itself with floods, fires, eruptions, typhoons. So is the relationship of Earth and Man, in the perpetual cycle of host and virus: growth, drying out, chelation and growth once more.
Wuhan had shut down in 1911 but gave birth to a New China. The plagues decimated people but led to the Fall of the Mongol Empire, opening progressive regimes.
BIMCO shows implications --- not the towel, just the bare knuckles.