As industry experts analyse the impact of the coronavirus, Sea-Intelligence CEO Alan Murphy predicts that in a worst case scenario, carriers could see freight rates decline to the same degree as they did during the financial crisis in 2009 - in which case the main carriers will collectively lose a staggering US$23 billion in 2020.
According to the consultancy’s latest report, over the past week, the number of blank deep-sea sailings has increased from 45 to 212. He said while there were multiple services with cancellations ranging through to the end of June, the majority of blank sailings were clustered within the coming five to six weeks, with the largest capacity withdrawal in the Asia-Europe trade.
The magnitude of the financial impact on the carriers, however, depends to a large degree on their pricing discipline, in his view.
“In the most benign scenario, the carriers experience a 10% volume decline in 2020 due to the pandemic but manage to prevent any material decline in freight rates. In this case their profits will decline by US$6 billion compared to 2019 and cause all main carriers combined to lose US$0.8 billion.”
But to avoid the R23 billion “worst case scenario”, carriers needed to acknowledge that the primary purpose of the capacity reductions should be seen as an effort to prevent a catastrophic drop in rate levels, he said. “The cost savings are also important, as they too are measured in the billions, but pale in comparison to the impact declining rate levels will have.
“Hence the development in freight rates will be important in the coming weeks, as that will determine the degree to which we will see even more aggressive capacity reductions.”