The speed of the virus spread makes it difficult to assess the full consequences. Nevertheless, we see a need to update our 2020 forecast to make some of this massive uncertainty tangible.

What is going on in addition to the coronavirus pandemic?

Geopolitical tensions that made the OPEC+ alliance break down, has subsequently made the crude oil tanker spot freight market erupt. The events that followed the breakdown - and those that are likely to follow, as Saudi Arabia is thoroughly preparing to flood the global oil market - will benefit the crude oil tanker industry specifically while driving fuel costs down more generally, at a time when oil demand generally drops.

In massive contrast to the benefits that the crude oil tanker shipping industry enjoys from the brutal geopolitics of the oil market, there are widespread negative impact from the coronavirus pandemic.

Moreover, the “Phase One” agreement, of the US-China trade war, is not delivering on its promises. Even before the effects of the coronavirus, the “Phase One” agreement between China and the US failed to boost volumes of the implicated goods in January. This opening is likely to set the tone for the full year. The failure itself is no surprise, but the magnitude of it surely is.

Global economic activity, which slowed down significantly in 2019 will become even lower in 2020. Some nations may even fall into recession. The trade-to-GDP multiplier does not deliver guidance under such extraordinary circumstance which we currently experience.

A call for stimulus

It remains of utmost importance that global political leaders, take measures to secure health and safety right now, but also that they prepare for the eventual return to normality – hopefully no later than mid-2021.

Traditional fiscal and monetary stimuli will only partly bring normality back, when the virus is contained. What is needed on top of that are economic stimulus packages which aim at securing the purchasing power of consumers and corporates. Public debt will rise as such measures are costly – but you should worry even more about the future if widespread layoffs and bankruptcies results in a severe global recession.

The service sector of any economy is surely hit the most in the short term. But manufacturing, which matters the most to the shipping industry is greatly impacted too.

Tanker shipping: two different realities

• Demand is positively impacted on the short term, as the breakdown of the OPEC+ alliance has lifted Saudi Arabian exports dramatically.

• In the longer term, the corona pandemic has annihilated global oil demand for 2020. BIMCO expects world consumption will fall in 2020, year-on-year. Transportation demand is going down. Most significantly for jet fuel as a single commodity, more generally due to lower economic activity.

• Supply: new built deliveries from Chinese yards will be slightly lower than previously anticipated.

• Freight rates for oil product tankers will be negatively affected by the fundamentally lower demand. Still BIMCO expects average freight rates for the year above break-even levels.

• Freight rates for crude oil carriers are currently super strong, if/when the geopolitical support eases the oversupplied market is likely to deliver freight rates below the levels of last year.

Dry bulk shipping: The world excl. China delivers in a supporting role

• Demand is negatively impacted for the full year, as China – the main buyer of all dry bulk commodities – has limited purchases while the coronavirus outbreak is being contained. Still we expect demand to grow for the full year, picking up from current low-point when China returns to the market for commodities.

• In the short term, demand from China is still weak. The Capesize sector is feeling the most pain as significant iron ore demand remains to materialise. Other dry bulk sectors fare comparably better. While still experiencing loss-making freight rate levels they are buoyed by demand from outside China.

• In the medium term, Chinese stimulus may benefit domestically more than externally. Demand from outside China will hit a soft patch as Europe in now the epicentre of the pandemic and North America seems to be up next.

• In the longer term, a gradual return to normality is expected. No demand boost is expected to come around, as the events have not built up demand, merely destroyed it.

• Supply: new built deliveries from Chinese yards will be slightly lower than previously anticipated.

• Freight rates for the dry bulk ships will be negatively affected by the fundamentally lower demand. Prior to the pandemic, BIMCO expected average freight rates for 2020 to come down from last year. They will now become even lower.

Container shipping: a negative demand shock replaces a negative supply shock

• Demand is negatively impacted for the full year, which causes BIMCO to revise the estimate from a low global demand growth to a negative one. Given the nature of this crisis, we do not expect a contraction of demand to proportions similar to that of the 2008 financial crisis, which saw demand slip to +3.4% in 2008 and contract by 9.5% in 2009, from an average demand growth of 9.7% in 1997-2007. The origin of this crisis is not financially and avoiding a huge increase in unemployment is a main objective for many stimulus plans.

• In the short term, Chinas manufacturing sector is still recovering from the lockdown. Reported productivity sits around 60-75% of capacity, whereas the - equally supply-chain-critical - truck drivers supposedly are fully recovered.

• In the medium term, Chinese exports of backlogged orders will resume and lift volumes out of Asia. The idle fleet will decline as the number of cancelled sailings are reduced. Only time will tell, if new exports orders will hold up while Europe and North America are in lockdown.

• In the longer term, the lockdown of Europe and North America keeps consumers at home and lifts unemployment, hopefully just temporarily. As a result, demand will evaporate for the duration of this. BIMCO does not expect a demand boost to appear when daily lives return. We will merely see a gradual recovery to normal freight volumes. For the regular network logistics, BIMCO expects 2020 to be massively disrupted due to these out-of-sync impacts to export centres and import centres across the globe.

• Supply: new built deliveries from Chinese yards will be slightly lower than previously anticipated.

• Spot freight rates are currently artificially elevated on the front-hauls out of Asia due to the positive effect of the reduced capacity. Service contract negotiations, which are shortly due on the main trades, are likely to be settled as late as possible, as major retailers as well as carriers have very little solid ground to tread on in terms of upcoming demand.

• For the full year, BIMCO already expected average freight rates below last years’ level. But that level is now expected to be loss-making. Due to deteriorating demand-supply fundamentals and higher fuel cost arising from the IMO 2020 sulphur cap implementation, even though the fall in oil prices has lessened some of the negative economic impact.

When the dust settles

Slowing globalisation may be even more pronounced than what we have seen in terms of slowdown since the financial crisis of 2008. Increasing protectionist measures may also become more widespread as nations seek to fix exposed vulnerability which the health crisis has made abundantly clear. Global and regional supply chains will be up for a review and while some will alter, some of the changes will benefit shipping demand while others won’t. This crisis has exposed several unwanted vulnerabilities to supply chains as we know them today.

The trade-to-GDP multiplier may yet again provide guidance to the direction of shipping demand stemming from global economic activity. Coming down from an average multiplier of 1 (2002-2008) to an average of 0.85 (2011-2020F), BIMCO expects the multiplier to stay below 1.