Economic outlook: Seaborne trade facing pandemic hit (source Lloyd’s List)

Seaborne trade will see negative growth in 2020 for the first time since the financial crisis in 2009

The coronavirus response will mark 2020 out as a year when the global economy went into reverse. This will have a negative impact on future seaborne trade and, while there will be a rebound, annual growth will track lower in 2022-24

THE domestic economies of many countries will shrink to numbers last seen five years ago and in some cases even further back. The world economic growth forecast from the International Monetary Fund points to a decline of 3.4% year on year in 2020.

The US economy is forecast to contract by 5.2%, the eurozone by 8% and in Japan by 5.1% this year. In India the economy is forecast to shrink by 4% in the current financial year, while in the UK, the economy shrank by a record 20.4% in April.

Meanwhile, Chinese GDP is forecast to grow by 1.3% in 2020, following growth of 6.1% in 2019.

These are just forecasts, however, and many analysts believe that we will have a sharp upturn in 2021.

While there are many reasonable arguments for that, it will be dependent on there not being any more national-level lockdowns if the virus starts to spread again.

Due to these economic circumstances, seaborne trade will see negative growth in 2020 for the first time since the financial crisis in 2009.

Total trade volume in 2020 is forecast to fall by 3% versus 2019. In 2021 though, growth will rebound to 5% and in 2022-2024 Lloyd’s List Intelligence forecasts a yearly growth of 3%. That gives a compound annual growth rate over 2020-2024 of 2.4%, compared with 3.7% in the 2015-19 period.

Dry bulk will fare slightly better in 2020, only decreasing by 1.9%, mostly due to the Chinese dominance as importer of dry bulk.

For liquid bulk, 2020 volumes will be 4% lower than in 2019, held up by floating storage of crude oil. Container volumes are set to decrease by around 4% as well but is dependent on a less severe second wave of the virus outbreak than the first one.

Production factor indicators

A drop in the consumption of energy commodities as a result of the economic downturn is having a knock-on effect in terms of demand for seaborne transportation and this will continue in the months ahead.

According to the International Energy Agency’s latest report, oil demand in 2020 is expected to fall by 8.1m barrels per day, the largest fall in history, before recovering by 5.7m bpd in 2021.

Transportation fuels are forecast to be under pressure the most in 2020 as lockdowns in various countries, but particularly the US, Europe, India and the Middle East, will reduce demand for gasoline and jet fuel, as air travel and distances travelled will decline significantly compared with 2019.

On a more positive note, oil demand recovered rapidly in March-April in China, while in India demand rose sharply in May.

Global oil supply fell by 11.8m bpd in May, driven by a record Opec-plus cut and economic shutdowns in the US, Canada and elsewhere. It is forecast that supply will fall by 7.2m bpd in 2020, followed by a modest increase at 1.7m bpd in 2021, if the Opec-plus cuts ease and Norway, Brazil and Guyana increase deliveries.

Crude oil prices rebounded in May from the low levels seen in April, as market fundamentals improved significantly over the month. The oil market was strongly supported by a reduction in the global crude oil surplus thanks mainly to the production adjustment agreement by the Organisation of the Petroleum Exporting Countries and participating non-Opec countries.

In May, Brent oil rose by $5.80, or 22%, to average $32.40 per barrel. On June 24, Brent stood at $42.80 per barrel.

Natural gas continued its downtrend into June to trade below $1.80 per million British thermal units. According to Gas Infrastructure Europe, inventories ended the month around 73% full, compared to 60% last year.

Lower demand due to lockdowns added to already high inventories as a result of warmer-than-average winter temperatures. The International Energy Agency expects global natural gas consumption to drop by a record 5% in 2020.

However, prices are expected to recover with the easing of coronavirus-induced restrictions and with a forecast for a relatively hot summer demand increases for cooling.

Passenger vessels

As outlined in the latest Lloyd’s List Intelligence Shipbuilding Outlook, travel restrictions and national lockdowns have had a significant impact on the ferry and cruise sectors.

The cruise industry is at a virtual standstill currently. Port calls in mid-May were around 220 in comparison with 1,500 in 2019. A dramatic fall of 85%.

Carnival, the world’s largest cruise company, is said to be spending around $1bn a month to maintain its fleet. Several governments have issued ‘no sail’ orders and even more countries are not letting cruiseships into their ports.

The vast majority of the 32m passengers that the Cruise Lines International Association projected would cruise in 2020, up from the record 30m last year, will not be on board.

The halt on operations is due to last until at least August with ships deserted in harbours in what is known as “warm lay-up”, in which systems are kept running and the ships are ready to go. However, of the cruiseships not in use, almost 25% have decided to turn off their AIS.

However, there are some positive signs. The cruise industry has overcome a variety of health challenges in the past, including norovirus, Sars and Mers, and has experience of getting back to business.

It also has an abnormally loyal customer base. The industry says bookings for 2021 are almost at the same level as they were this time last year. Many regular cruisers will return, but new ones will also have to be added in order for annual growth to continue.

Meanwhile, although it is difficult to get a true picture of the situation, Lloyd’s List Intelligence estimates weekly port call by ferries globally were down by around 40% year on year by mid-May.

In Europe, ferry services are starting to pick up again as borders reopen and the summer tourist season stutters to life again, although the severe drop in demand seen in recent months has made some services unviable.

But it is outside of Europe where increased demand for ferry services is likely to be strongest. Non-European ferry services are predominantly used for transporting passengers in a commuting sense, such as in between islands and the mainland or to cross river mouths in large cities.

This type of ferry business is bound to increase as populations increase in Africa and Asia, as predicted by the United Nations, and such cities gets more and more crowded.

The only real threat to these ferries is where a tunnel or a bridge is built, and that will not happen everywhere. So, in general, the long-term future for ferries is bright.