By Jim Shaw
The outbreak and spread of COVID-19 around the world has affected shipping to various degrees and the immediate future for most sectors, outside of tankers, looks bleak. The cruise industry has been particularly hard hit with all ships, well over 400, out of operation and laid up at a cost expected to total more than $1 billion.
Carnival Corporation alone, with more than 100 vessels under its various brands, is estimating a “hot” layup cost of between $2 and $3 million per ship per month while nearly full crews are kept on board. And even moving to a “warm” layup with reduced crews, is proving difficult because of port, border and air travel restrictions, forcing some lines to employ their own vessels for repatriation work.
By late April the US Coast Guard was reporting that nearly six dozen ships were anchored off Florida and the neighboring Bahamas with more than 35,000 crew members still living on board. At the same time new ships being delivered, including P&O’s Iona and Celebrity’s Apex, the latter already suffering a COVID-19 outbreak with only crew on board, are moving straight into layup. Some vessels under construction, such as Crystal Cruises’ Crystal Endeavor, are having their production schedules extended and several ships in the design stage, including a fleet of six wanted by new start-up company Amundsen Expeditions, may never be built.
Bernard Meyer, the owner of Germany’s Meyer Werft, has warned his employees that “it could be 2030” before the building rate for cruise ships again equals that of last year.
In the container sector ship operators have been trying to maintain freight rates as cargo volumes plunge by “blanking” or canceling sailings and removing capacity from the market. This is expected to see between 250 and 350 sailings or more canceled within the current quarter and between 30 and 35 percent of total world container capacity laid up, a situation expected to cost the top 15 carriers more than $6 billion before the year is out.
If freight rates collapse, which could take place if several of the financially weaker carriers become desperate for cash, losses might mount to more than $20 billion. In mid-April Moody’s Investors Service cut the ratings outlook for Denmark’s A.P. Moller-Maersk A/S, the world’s largest box carrier, from “stable” to “negative” while other companies, including CMA CGM of France and Pacific International Lines of Singapore, have been selling off assets and laying up ships to increase financial liquidity.
At the end of the first quarter more than 335 container ships representing 9.1 percent of the global fleet, or 2.12 million TEU of capacity, were out of service. This was largely due to early troubles in China. A much larger wave of lay-ups is expected to be generated through the current quarter because of rapidly falling global consumer demand, with restrictive pandemic measures possibly leading to a 25 to 30 percent decline in overall shipping.
In the bulk trades tanker owners have been on a rollercoaster ride because of the impact of Covid-19 combined with a conflict between OPEC and Russia over crude oil production. This saw freight rates for large tankers skyrocket from $30,000 per day during the week of 8 March to $210,000 by the following week as cheap oil flooded the marketplace only to meet rapidly falling world demand. The latter brought about escalating demand for large tankers to be used as floating storage units. Product tankers then joined the fray because refineries could no longer find customers for their product. By the week ending April 10 some 146 million barrels of oil were in floating storage on 110 tankers worldwide with at least 30 anchored off Rotterdam holding nearly a million tons of refined product.
Continuing demand for storage is expected to see owners obtaining more than $115,000-per-day for six-month charters and $75,000-per-day for 12-month charters if the imbalance continues. This is good news for owners but the longer run points to a downturn as refinery production slackens while demand recovery stalls. In addition, the low price of oil is hitting the exploration sector very hard with such companies as Noble Energy, Halliburton, Marathon Oil and Occidental having already lost more than two-thirds of their value. This is seeing a significant number of offshore supply vessels taken out of service and drilling rig contracts cancelled.
As the marine industry continues to contract older equipment will be sent to the breakers but even they may not be able to absorb it until Pakistan, India and Bangladesh come out of lockdown. This could see a considerable amount of tonnage anchored off Indian Ocean beaches until the infection rates there decline.