In a recent commentary, BIMCO's Peter Sand had commented that "whenever China sneezes, we all catch the flu", highlighting that the whole world is dependent from China and is directly affected.

This time, Peter Sand stated that 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.

Moreover, it is stated that the global economy which experienced many challenges due to the crisis, will become even lower in 2020, as some nations may even fall into recession.

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.

Yet, the usual fiscal and monetary stimuli will come back to normal partially, when the virus is container. Therefore, BIMCO suggests that what is needed 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.

Moreover, the recent breakdown of the OPEC+ alliance has contributed to the increase of Saudi Arabian exports, meaning that demand will be positively impacted on the short term; in the long term though, the 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.

Also, lower demand will impact freight rates. Thus, 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.

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; 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.

Concerning new built deliveries from Chinese yards, BIMCO notes that they will be slightly lowered than previously anticipated.

Before the pandemic, BIMCO expected average freight rates for 2020 to come down from last year. They will now become even lower.

About the container shipping sector, BIMCO revised its 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.

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.

However, BIMCO does not expect the demand to rapidly increase when daily lives return, but they see a gradual recovery to normal freight volumes.

In the meantime, 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 whole 2020, BIMCO already anticipated 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.

Concluding, slowing globalization 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.