The 2016 collapse of Hanjin Shipping and the fallout from the global financial crisis pale in comparison to the scale of removed capacity by carriers in response to the shock to demand caused by the coronavirus disease 2019 (COVID-19) epidemic, according to maritime analyst Alphaliner.
Hanjin’s bankruptcy took 1.59 million TEU out of service almost overnight, and the global financial crisis of 2009 saw 1.52 million TEU withdrawn. But Alphaliner estimates that carrier response to falling demand has left a record 2.04 million TEU currently idle, 8.8 percent of the global fleet.
Although in percentage terms the idle fleet was higher during the financial crisis when 11.7 percent of capacity was inactive, Alphaliner noted in its latest weekly newsletter that in 2009 the total fleet capacity was 13.02 million TEU compared with 23.27 million TEU today.
The idle capacity will only be reactivated once demand improves, which Peter Sand, chief shipping analyst at BIMCO, expects will slowly return to normal over the next two months. He told JOC.com that manufacturing facilities were currently staffed at 50 to 70 percent levels, but a severe lack of truck drivers continues to limit shippers’ ability to get input materials and finished goods to and from those production facilities.
“We are not expecting a huge order backlog to deliver a swift boost to demand,” Sand said. “Our scenario points more in the direction of a more steady return. Right now, most retailers around the world are simply running down inventories.
“We believe it will take a significant amount of time before supply chains are fully back in operations — May or June, all going well. But watch out for the intra-Asia trade, because that is where you will see the pickup first begin to materialize,” he added.
Sand said the disruption to Chinese manufacturing from the coronavirus was already spreading to neighboring countries due to the deeply connected nature of regional supply chains.
“This interconnectedness is the reason why intra-Asian container volumes are an early indicator of what will be exported on the long-distance trades out of Asia,” Sand noted in a BIMCO container shipping outlook. “Manufacturing in China, therefore, is not alone in facing problems; knock-on effects will be felt by manufacturing and exports throughout the region.”
Over the past three weeks, 30 percent to 60 percent of weekly outbound capacity has been withdrawn from the Asia-Europe and trans-Pacific trades, as well as from the intra-Asia routes, according to Alphaliner. The reopening of factories in China would see a gradual return of demand, but the analyst said cargo volume recovery was expected to take a few weeks, and until normal volume was reached, carriers would continue to selectively implement blank sailings, likely until the end of March.
In a client advisory, non-vessel-operating common carrier (NVO) SEKO Logistics said the Chinese central and local governments were urging factories and companies to resume production, relaxing anti-virus measures in cities that rely heavily on manufacturing, such as Dongguan and Zhongshan in southern Guangdong Province. Migrant workers returning to the factories are no longer required to be quarantined as long as they are healthy, and factories that meet new health and safety rules do not need to wait for government approval to resume production.
According to a report from Bloomberg, transport ministry official Liu Xiaoming said about 80 million migrant workers have returned to their places of work, and 120 million more will return by the end of February, with another 100 million expected to return from March onward.
Brian Bourke, SEKO’s chief growth officer, advised cargo owners to speak to their service providers and establish what options were available, such as 12-day expedited ocean shipping from China to the US, or alternatively using sea-air and routing to ports in Asia or the Middle East and then sending cargo by air the rest of the way.
“The first thing [shippers] need to do is talk to transit companies. There’s not going to be enough ships and vessels in rotation yet, even when the freight is ready, so they need to understand when things will be ready so they can prebook,” he said.