Specifically, it is stated that the crisis will 'put a drag' Chinese economic growth in the first quarter of 2020, potentially taking a toll on annual GDP growth as well.
In addition, the downfall continued with the shutdown of the majority of the transport system, which consequently limited the consumption of oil, refiners have reduced crude runs across the board, while demand declined and is unlikely to return to boost shipping demand after the crisis is over.
The coronavirus also led to wide-spread factory shutdowns, followed by a slowdown of manufacturing and industrial production.
Peter Sand highlights that
The intra-Asian container shipping market, the largest in the world, will be the first trades to feel the fallout from the coronavirus if intra-Asian supply chains are disrupted. Secondly, the long-haul trades to North America and Europe will be affected.
In the meantime, the majority of the shipping players have already published their preventive measures, including restriction or cancellations of voyages adding to low demand. However, it is reported that if countries stop producing goods, then short-term alternatives will not exist. On the contrary, medium term alternatives will rise fast though, meaning alternative producers of the goods, just as we have seen as an effect of the ongoing trade war between the US and China.
Many countries have already issued measures to curb the virus spread from seafarers, with the most important steps being:
- Declaration on health
- Temperature measurements
- Information on sick or deceased crew or passengers
- Information on previous port calls
- Information on crew or passengers’ travel history – i.e. if they have been in China within the previous 14 days as a minimum
The virus illustrates just how dependent the world has become upon China with many supply chains deeply embedded into the country
... Peter Sand added.
For the time being, the shipbuilding sector doesn't seem to have been impacted from the virus yet. However, BIMCO expects that in the coming months the sector will be affected, mostly on retrofits of scrubbers, ballast water treatments systems etc. as well.
Dry bulk shipping rates have extended its rout over the past two months, driven largely by seasonality and the newly implemented IMO 2020 Sulphur Regulation, which has sent fuel oil costs soaring. Chinese imports of dry bulk commodities are the main driver for the dry bulk market and with a slowdown of industrial production in the short-term, the outlook for Q1-2020 is not shaping up particularly well. Freight rates will stay low, until Chinese merchants get back into the market for the usual commodities, such as grain, coal and iron ore.
The traditional dry bulk low season is usually in Q1, and the market tends to rebound post-CNY. Yet, with the coronavirus not under control yet, the slump will inevitably be more protracted. The Capesize index fell into negative territory on 31 January 2020 and has continued its descent to reach -133 index points on 4 February 2020.
If large parts of China remain under quarantine, it is likely that earnings will continue to drop across the dry bulk segments.
In addition, tanker shipping has certainly felt the heat in the past week, partly from the virus, but also with the lifting of US sanctions for a lot of Chinese-owned oil tankers. A lot of the oil tanker business is carried out in the spot market and freight rates have already seen substantial changes.
As China is the largest crude oil importer globally, a shutdown will bring with it a transitory slump of crude oil imports and accompanying refinery cuts in run rates.
Peter Sands poses the question of "How does it affect the US-China “Phase One” agreement?"
The Phase One deal was signed in the mid-January between US-China, with the latter pledging to buy an additional USD 200 billion of US goods over a two-year period, of which a lot of energy and agricultural products will be seaborne.
It remains questionable whether these purchases, will ever see the light of the day, and the virus outbreak could prove to be an additional hindrance to this Chinese pledge. White House economic adviser Larry Kudlow has said that the “export boom” of US commodities will be delayed as a result of the virus.
He concludes that as the virus continues spreading, there is no way to forecast the medium to long-term implications, yet the short-term consequences are clear: demand and freight rates are dropping.