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Recent data suggest activity may be recovering but knock-on effects will take time to unwind

The coronavirus outbreak has brought parts of the world’s shipping industry to the brink of paralysis, with disruption that began in China hitting shipping lanes on the other side of the world with no obvious correlation.

The sudden stop in economic activity has sent freight rates plunging on some lines, while rates on other lines have soared due to equipment shortages caused by the disruption. Data from the past two weeks suggest a recovery in activity is under way, but analysts also caution that another dip could be coming.

“The world is shutting down,” said Patrick Berglund, chief executive of Xeneta, an Oslo-based provider of data on container shipping rates. “We are super worried about what is happening. What is different [from previous shocks to global trade] is that usually it’s just a corridor or two. Now it’s worldwide. Everyone is panicking.”

The Baltic Dry index — which tracks the cost of shipping bulk raw materials such as metallic ores, coal and grains and is therefore seen as a forward indicator of global economic activity — has fallen 80 per cent from a recent high last September.

It is lower now than it was in the aftermath of the global financial crisis and is testing its low of early 2016, the most recent period of year-on-year contraction in the volume of global trade, according to the CPB World Trade Monitor.

Bulk shipping to China has collapsed this year. Data from VesselsValue, a company that monitors cargo volumes and other industry activity, show that China’s imports of dry bulk goods have plunged since the beginning of January.

The sudden stop in much of China’s manufacturing sector is reflected in freight rates from China to the US and Europe, says Mr Berglund. Average spot market rates on the China to north Europe route have fallen from $2,096 per 40-foot container at the start of January to about $1,620, a fall of more than 22 per cent, according to Xeneta’s data.

Interpreting the data is not straightforward. Rates on routes from Asia to Europe and the US often fall back after stepping up in monthly rounds of negotiations between shipping lines and their customers. 

But rates had been expected to stay firm after they rose at the start of January. Shipping lines cut capacity this year in a bid to keep rates high to offset the costs of new IMO 2020 regulations, mandating the use of less polluting but costlier fuels. 

Instead, spot rates from east Asia have collapsed and volumes have continued to plummet. Alphaliner, an industry data provider, says about 700,000 containers have been withdrawn from Asia to north Europe routes during the eight weeks since the Chinese new year, more than double the reduction during last year’s holiday. Dozens of scheduled sailings have been cancelled.

Long-term contract rates, typically much more resilient than spot rates, have also fallen, with those on the China to north Europe route down 12 per cent, according to Xeneta.

But Xeneta’s data also show rates from Europe to China rising sharply this month, up from $821 to $1,189 per 40-foot unit, as Asian exporters struggle to source containers that are piling up as they wait to be moved out of ports on both sides of the world. 

Conversely, data from VesselsValue show that shipments of refined petroleum products from China to Singapore, an export hub to the rest of the world, have risen this year in comparison with the period after last year’s New Year holiday, as Chinese consumption of petrol, diesel and other fuels has fallen.

Adrian Economakis, chief strategy officer at VesselsValue, says the knock-on effects of such disruptions can be seen across the world, such as in a sharp reduction in shipments of refined products from the US to Brazil.

Such cargo volumes typically fall at this time of year due to refinery maintenance, he said, but this year’s fall has been sustained and exaggerated by caution over the effects of the coronavirus outbreak.

Recent daily data suggest port activity in China is picking up after its collapse. Clarksons Research Services, a shipping data provider, says the number of calls by ships at Chinese ports has recovered in the past two weeks, as shipping companies work to clear congestion. But its analysts caution that port calls may be taking place for other reasons, such as crew changes, and that a second dip is possible once initial backlogs are cleared.

If activity is picking up, it has yet to be reflected in container rates. Mr Berglund at Xeneta says spot rates on routes out of China remain unchanged this week from their recent falls.

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