It seems like 2020 is already a year of challenges for the TSL industry, especially for carriers and shippers. They have to face many difficulties, such as the new IMO Low Sulphur Regulation and the effects of the Coronavirus outbreak. The competition on the market gets only fiercer. What is the forecast for maritime transport?
Forecast for maritime transport – Low Sulphur IMO 2020
The new International Maritime Organization (IMO) Low Sulphur Regulation is effective from the 1st of January 2020. It requires carriers to reduce their sulfur emissions by 85%, which means ships will have to use marine fuels with a sulfur content of no more than 0.5%. The long-term goal is to reduce the environmental impact of the industry and significantly improve air quality. It is a major cost impact on the industry. Although the shippers are not content with higher operation costs, it undoubtedly positively effects the environment.
The regulation forces carriers to switch to compliant fuels with lower sulfur contents, install advanced air quality systems onboard the vessels, or use LNG-powered vessels. Only if they are able to pass the higher fuel costs along to their consumers, will the carriers survive on the market.
Forecast for maritime transport – higher freight rate
Only one of the reasons why the freight rate is to rise is because of the Low Sulphur IMO 2020 regulation. It’s best not to forget that many factors shape the final price of oil, which is a significant indicator of shippers’ services price. It includes geopolitical events, such as sanctions, military conflicts, and OPEC’s decisions, as well as overall international demand for oil.
That, alongside with capacity utilization, distance traveled, and the difference in tonnage between head-haul and back-haul cargo and other factors collectively shapes freight rate. As the situation is uncertain, it prompts shippers to delay their decisions. It undoubtedly impacts the pricing transparency. The rate of BAFs per 40’ HC container on some routes increased by 40%.
Although the volatility of prices has increased and presumably will not stabilize soon, shippers should not hold off long on contracts, leading to further disturbance in the supply chain.
Coronavirus
COVID-19 (Coronavirus) has been spreading rapidly beyond China since January 2019. Coronavirus-related delays significantly impacted space and container availability throughout the world. As Chinese manufacturers were on a halt from the 3rd of February to 15, it has affected the handling of cargo at ports.
The numerous vessel cancellations to or from China due to very limited available export volumes have resulted in considerably less space and containers available in all countries trading with China.
The new situation calls for new measurements. For example, Hapag-Lloyd is to implement a revised booking cancellation fee, effective the 1st of April 2020. It will be applicable for every export booking from China and Hong Kong that is canceled 7 calendar days or less before the expected arrival date of the first intended vessel due to customer related issues.
Moreover, ocean freight shippers have announced additional blank sailings to rationalize capacity supply. Some of the companies cancel sailings on export services. As long as the situation will not be normalized, it is expected that more and more companies will take those measures to prevent further loss. The number of vessels is reduced in and out of China and other regions. The situation is to remain at least until the middle of March. As a result, ports are suffering from container surplus as a consequence of discharging vessels, as the containers are not picked up for re-export.
Another aspect is that some of the ports sporadically close its gates due to the low number of vessels arriving as a result of the significant blank sailings to China. Several countries, mainly Asian countries, have imposed restrictions on port calls. Ships calls at major Chinese ports have been reduced by 20%.
Overall, it is hard to say for sure what the future holds for maritime transport are. However, in the not-so-distant future, we can expect an all-out price war involving shippers and carriers as they face problems out of their control.
https://www.cma-cgm.com/about/imo-2020
http://marketing.ff.geodis.com/resources/6066/Coronavirus/GEODIS_Ocean_Freight_Outlook.pdf?EMTID=86e0bdab2993cb14aac1
https://geodis.com/de/newsroom/updates/advisory-bulletin-coronavirus-outbreak-update
https://www.agility.com/en/pages/coronavirus-operational-update/
https://www.shell.com/business-customers/marine/imo-2020.html
https://pl.kuehne-nagel.com/pl_pl/other-links/baza-wiedzy/imo-2020-wprowadzenie-nowej-regulacji-dotyczacej-transportu-morskiego/
https://www.alixpartners.com/insights-impact/insights/container-shipping-report-2020/?utm_source=dynamic&utm_medium=press&utm_campaign=container-shipping-2020
