COVID-19 Impact on the Global Shipping Industry
Human, economic, and social costs have been enormous as the world continues to grapple with the COVID-19 pandemic. The threat of a major recession still hangs over the international economy, affecting almost every industry and sector. The COVID-19 pandemic has been severely affecting the globalisation process ever since its onset.
The maritime domain, which is among the primary enablers of globalisation and transports 90% of global trade, has been experiencing significant consequences. The industry faced extreme difficulties, especially in 2020, when the border restrictions increased, countries imposed varying measures to contain the transmission of the virus and mitigate its impact, travel being curtailed, ports had been being closed, and ship entries being restricted.
The United Nations Conference on Trade and Development (UNCTAD) had already predicted a decline in international maritime trade due to the increasing trends of protectionism, trade tension, geopolitics and sanctions, increased rift between China and the United States, and the increased environmental concerns in 2019.
A report by the UNCTAD estimate published in November 2020 predicted significant decline in the global maritime trade due to the unprecedented disruption caused by COVID-19. Global container shipping volumes fell by more than 5% in the first quarter of 2020 compared with the first quarter of last year.
The report also warned that new waves of the pandemic could worsen the situation by disrupting supply chains and economies which it did during the second wave of the COVID-19 in 2021. The COVID-19 pandemic, since the beginning has sent shockwaves through supply chains, shipping networks, and ports, causing cargo volumes to plummet, and growth prospects to be shattered.
The entire maritime industry had been impacted, from shipyards to bulk cargo carriers. Reduced labour costs and lower demand had pushed freight rates lower, while additional restrictions imposed by countries at ports, such as a ban on crew changes, are still causing global supply chains to be disrupted. Containment and goods in transit were delayed, rerouted, or discharged before reaching their destination.
Moreover, the ports were shut down. For example, certain countries had prohibited the entry of marine vessels in 2020, requiring such vessels to be on the water and without a destination port. The entry of vessels by certain countries had been restricted or prohibited, thus, causing chaos amongst the marine transportation facilities globally. The situation, however, is gradually becoming better, as the world is fighting against the pandemic with the increased vaccination drives across the globe.
The issue of port congestion with cargo and containers lying unattended had surfaced again in 2021 as different countries are in various stages of lockdowns due to the second wave of the pandemic. The crisis also hampered offshore drilling in a number of countries, especially in 2020. Fisheries and seafood industries, for example, had also suffered major loss. There has been a supply and demand shock in the industry.
Supply had been impacted as exports from Chinese ports was severely disrupted since January 2020 due to a production shortage in the country. The shipping companies are still witnessing significant drop in demand as the Delta variant of the virus is spreading to other parts of the world.
One of the consequences of the crisis has been a greater emphasis in some countries on self-sufficiency and diversification in trade relations in the post-pandemic world, with the crisis highlighting the world's reliance on China.
As the epicentre of the coronavirus, moved from China to Europe and to the United States and Asia in 2020, impact was felt on transatlantic ports. Although ports in Europe and the United States are mostly automated and require little manpower, but related industries were in jeopardy.
According to Panjiva, a trade data company based in New York, overall seaborne imports into the United States fell in the first two weeks of March, with imports from China falling by more than 40% and goods from Europe falling by more than 6%. In March, the Ports of Seattle and Houston temporarily closed some terminals; the Port of Los Angeles had also reduced its operating hours.
The industry dealt with crew shortage as a result of lockdowns since a large number of crew members were stranded on ships in various parts of the world. Nearly 40,000 Indian crew members working on merchant and cruise ships were stranded around the world in 2020.
The shipbuilding and ship repair industries have been hit hard. As the pandemic is spreading with newer variants, shipbuilding facilities in China are getting impacted. In Singapore, two major shipyards, Sembawang Shipyard and Keppel, which remained open as essential services, felt the impact as several labourers tested positive, raising concerns about worker safety in these settings.
SEA Europe, which represents Europe's maritime civil and naval industries, warned that Europe risked losing its global leadership in complex shipbuilding and technologically advanced maritime equipment manufacturing as the pandemic hit the capital-intensive and export-oriented sector, which was already dealing with rising competitiveness and trade protectionism.
Important shipping ports reported year-on-year drops in cargo between 10% and 20% in February 2020. Over 50 countries had modified port protocols, ranging from port closures and quarantine measures to additional documentation and examination.
Every country's competent health authorities are avoiding the risk of transmission of COVID-19 by vaccinating more and more people. All the goods that were previously carried conveniently on a ship or any other marine vehicle must follow a set standard of rules and procedure which has limited the demand for cargos.
The delay in such transportation as a result of the added complications of quarantine periods has resulted in a further decrease in demand for cargos. Due to the 14-day waiting period or the waiting period prescribed by the competent authorities in each country, perishable goods cannot be transported.
Many small companies in the maritime and shipping industries had gone bankrupt in 2020 and 2021 as a result of low demand and an inability to manage the company's finances during this period of low cargo and shipping demand. This has had a significant impact on small businesses, and several companies in this industry have closed as a result.
Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce and lockdown measures, led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers. Maritime trade flows increased further as some governments eased lockdowns and approved national stimulus packages, and businesses stocked up in anticipation for new pandemic waves.
The most significant impact on freight rates has been on trade routes to developing countries, where consumers and businesses can least afford it. Rates to South America and Western Africa are currently higher than rates to any other major trade region.
Yet the global shipping industry is expecting a sustainable recovery, as a vital enabler of the smooth functioning of international supply chains. UNCTAD forecasts that maritime trade will return to positive territory and grow by 4.8% in 2021, assuming that global economic output recovers in late 2021. Players in the maritime sector must adjust their operations, finances, sanitary and safety protocols, as well as working practises and procedures, to cope with pandemic-related disruptions. Several governments are also reforming their border agencies, port authorities, and customs administrations to keep trade flowing while keeping people safe.
An example of such cooperation is the United Nations rapid response project on ‘Transport and trade connectivity in the age pf pandemic: Contactless, seamless and collaborative UN solutions’ which brings together United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), United Nations Conference on Trade and Development (UNCTAD), and four other regional UN commissions.
Ports are now becoming more interested in strengthening connections with the hinterland in order to be closer to shippers and ‘anchor' cargo volumes, in line with the recent push for port-centric solutions.