The choppy water that has turned 2019 into an annus horribilis of sorts for the shipping industry – whether due to US-China tariff sparring or oil-sector tension – “may very well culminate in the formation of a perfect storm for the shipping industry”, said David McCallum of DAL Agency. Adding his voice to ongoing discourse ahead of the 2020 restriction by the International Maritime Organisation that will limit the sulphur content in bunker fuel from 3.5% to 0.5%, the managing director of the SA agency for niche operator Deutsche Afrika Linien, expressed his concern for the immediate future. “2020 and 2021 are going to be very tough years for shipping lines. The introduction of the IMO requirements from January 1 and their associated costs will further exacerbate the current developments in the economic and geopolitical spheres.” Add all the holdups that lines have had to deal with at local ports, and “the amalgamation of these may very well culminate in the formation of a perfect storm for the shipping industry”, McCallum stressed. Commenting on port delays at Ngqura earlier this year, causing throughput disruption that added at least a week or more to DAL sailings, McCallum added: “The operating costs incurred in providing a shipping service to and from South Africa have drastically increased over the past year. “Chief among reasons for increased costs,” he pointed out, “were continued operational challenges.” Moreover, while the need for IMO 2020 could not be disputed, costs associated with the sulphur cap would further increase already higher-thannormal operational costs, he added. The consequence of such price pressures will lead shipping lines “to seek recovery from shippers via various means”. Lines though are not unreasonable and escalating costs don’t mean the shipping industry won’t “continue to implement a variety of measures to alleviate the cost impact of IMO 2020. “But an increase in cost recovery is unavoidable and will be essential if shipping lines are going to continue providing regular services to and from South Africa.” McCallum’s sentiments echo the forboding views of Simon Heaney, senior manager of container research at Drewry and editor of the shipping consultancy’s publication, Container Forecaster. Speaking to a British supply-chain portal recently, he said “some lines may need to take drastic action to avoid bankruptcy”. Heaney’s warning also came as Drewry issued another full-year downgrade for the shipping industry on the back of consecutive decreases in ocean freight. The analyst added that continued volume depreciation quarter-on-quarter could also be seen in its predictions for throughput for the remainder of the year – down from an initial 3.9% to 2.6% on the back of expectations that volumes would stabilise around 3% by the time the sulphur cap was instituted. Commenting on IMO 2020, Drewry said box ship operators could expect $11 billion to be added to their fuel bill as the cap took effect. It also expects substantial cost implications before the end of the year as lines scramble to adapt vessel tanks for low-sulphur fuel consumption. And while McCallum indicated that lines would institute measures to recover escalating costs, Heaney said carriers would try to protect cash flows through measures like slow-steaming, blank sailing and sub-letting chartered vessels to supplement strained profit margins.
INSERT: Some lines may need to take drastic action to avoid bankruptcy. – David McCallum