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STRAIT TALK

Virus could wipe out shipping industry's profits

THE good news is that China appears to be getting the Covid-19 outbreak under control. More good news is that most people who are infected recover.

It is particularly welcome that the Maritime and Port Authority of Singapore (MPA) was able last week to announce that a crew member working aboard a cargo ship which had arrived in Singapore from China and was diagnosed with the infection fully recovered and his ship has resumed normal operations.

MPA, the National Environment Agency's Port Health and the Ministry of Health worked together to arrange for the crew member to be treated, the remaining crew onboard the ship to be quarantined for 14 days, and have the ship cleaned and disinfected. None of remaining crew became infected.

The story of the cruise ship Diamond Princess, berthed in Yokohama, has been very different and demonstrates how dislocating this disease can be to the shipping industry.

Many passengers and crew were infected and two people died. It will presumably be some time before that ship is back in service.

The picture has been changing rapidly. By the end of last week, although the number of new cases in China was declining, more were being detected in other countries, including Italy and several other European countries. The word "pandemic" was still being avoided but there were cases being reported around the globe.

Updated guidelines

On Wednesday last week, International Chamber of Shipping (ICS) secretary general Guy Platten led a delegation of shipping industry leaders to meet the World Health Organization (WHO) in Geneva.

ICS has been working on updated guidance for the industry and a statement stressed that the shipping sector was working closely with the WHO to ensure that guidelines for industry and governments help limit the spread of Covid-19, while maintaining international trade.

Mr Platten said: "We have a special obligation to ensure the safety and health of seafarers and passengers. We have proposed a collaboration with WHO to evaluate and refine best practices regarding managing health threats in a shipboard environment.

"The cruise industry in particular has highly advanced practices and procedures and we are looking for practical ways to adapt those to broader maritime applications. We hope this effort will help provide some additional clarity and consistency for shoreside authorities when addressing ships during a health emergency. The maritime industry, especially ICS and its members, are fully committed to these efforts."

Covid-19 is estimated to be costing the industry US$350 million a week in lost revenues. More than 350,000 containers have been removed from global trade. Global supply chains continue to suffer, and issues remain around the quarantining of ships at ports.

Industry analyst and consultant Maritime Strategies International (MSI) has published an analysis of how the virus had been affecting shipping sectors and what the implications of a further escalation might be.

The impact of the disease on the Chinese economy has already been severe and the scenarios for shipping range from a quick resolution to a long drawn-out impact. In the 10 days or so that have passed since that analysis was carried out, the situation appears to have moved towards a longer-lasting impact.

MSI managing director Adam Kent noted that each sector had been affected to a different degree by the crisis and each had a different set of vulnerabilities to escalation or prolonged disruption.

Huge hit to dry bulk

He said: "Vessel earnings in the tanker segment have already seen a negative impact and are exposed to continued disruption to oil demand, while for dry bulk the coronavirus has worsened an already-challenging environment.

"The impact on the container trades have been different until now, with relatively small movements in markets but major disruption to trade. In each case the downside risks from escalation and further disruption are extensive."

Turning to dry bulk, he said the potential impact of Covid-19 was "huge, given that China imports around 40 per cent of global dry bulk cargoes.

Chinese industrial production and demand for dry bulk imports have already been severely hit by the virus, the result of extended factory closures and reduced worker mobility.

Mr Kent said the container shipping sector has experienced a different type of exposure to Covid-19, "with the immediate impact on markets so far arguably the smallest among the three main sectors". But he warned: "Disruption to containerised supply-chains and liner company operations has been extensive, however, and the longer this lasts, the less markets will be insulated."

For container ships, the outbreak is fundamentally a question of supply not demand, as disruption to China's manufacturing output and port operations effectively creates a big reduction in the supply of containerised goods.

The impact so far effectively amounts to an extension of the Lunar New Year - when even in normal years container trade flows take a hit, freight rates tumble and factory output takes weeks to return to normal. The outbreak has turbo-charged these seasonal trends.

It was reported that the International Air Transport Association's members expect to see Covid-19 wipe out any prospects of making a profit this year. It could well be that the same could be said for much of the shipping industry.