• Monique Giese, Partner |

A crucial connection point and enabler of trade worldwide, the shipping industry across the globe faces serious challenges in the wake of the impacts of COVID-19. I would argue that the carry on effects are severe, with around 90 percent of world trade carried out through ships.1 They are still by far the most cost-effective way to transport goods and raw materials around the world.

Low cargo rates, overcapacity on shipping containers and rapidly evolving environmental regulations are just a few of the ways that the COVID-19 situation is delivering some early year disruption to the shipping industry.

There has been a gradual decrease in the World Container Index from mid-December 2019 to the beginning of February 2020, but a sharp decline of around 15 percent per 40-foot container was seen in the index from February to the end of March 2020. The Container Index increased by 0.3 percent at the beginning of April 2020 and 9.7 percent per 40 feet container up compared to the same period in 2019.2 The index usually starts getting better from March, but this year due to COVID-19 the index only started gaining from April.

Even though the bunker prices have been increased about 35-45 percent from January 2020, largely due to changes in fuel regulation on the usage of Low Sulphur Fuel by IMO 2020, the crash in the oil prices due to COVID-19 have nullified this effect.3

During the calendar week 13 and 14 of 2020, the average ship waiting times at six major ports were about 32 percent below normal which means less traffic in the ports, indicating a decline in port activities. By the end of April 2020, the average ship waiting times were 20 percent above normal indicating a recovery in port activities.

China has a strong influence on the shipping sector since it is a major trade partner for several countries, but the container shipping market is facing some early year disruption due to COVID-19.

Exports from China have dropped 17.2 percent compared to the previous year in January and February of 2020 combined due to factory shutdowns after an extended Lunar New Year holiday period and widening travel restriction imposed by the government to mitigate COVID-19, disrupting the supply chain of China.4 Manufacturing PMI (Purchasing Managers' Index)i of China plunged to record lows of 40.30 points in February 2020 and raised to 50.1 in March signalling a stabilization in business conditions.5

In the United States, imports from China have stumbled 31.4 percent (non-seasonally adjusted) to the lowest since May of 2009. The Manufacturing PMI has reached a record low of 48.50 points in March 2020 marking lower than the average which is 53.53 from 2012 until 2020.6

According to forecasts by the World Trade Organization, global trade could fall by between 13 and 32 percent.7 All regions would suffer double-digit percentage declines in trade, with exports from North America and Asia the hardest hit. I predict that sectors with complex value chains, such as electronics and automotive products, would also see steeper falls.

Among the business leaders that I speak with, these shifts are having a significant impact on the freight rates due to a drop in supply and demand for raw materials and commodities. Reduction in cargo and missed port calls have forced freight rate lower. Further, operating businesses with limited capacity and blank sailing have had a negative impact on the financial capacity of organizations. The current conditions in the market will intensify the consequence of cash flow and liquidity risks, leaving many shipping companies uncertain about the availability of additional financing, where it may be needed, and/or about whether refinancing of existing loans will be on acceptable terms.

What lies ahead for global shipping?

I expect the global transport sector will be forced to operate in a limited way in the coming months, not solely because of the impacts of COVID-19, but rather a ripple effect of its spread, the potential disruptive effects of International Maritime Organization 2020 on phasing-in of low-sulphur fuel and the as yet failed implementation of the China-US phase one trade agreement.

Container traffic leaving China has contracted by almost half according to the European Commission. Chinese ports are packed with import containers that are delivered, which results in extra demurrage charges for the containers stuck in Chinese ports. Also, shortage of empty containers for export from Europe and in the rest of the world. The situation is particularly difficult for reefer containers, affecting for instance shipping of fruit from Latin America to Europe. Sea freight cost indicators are falling steeply due to the closing of some factories in China, which has impacted Import and Export levels from the country. I believe we can expect this to spike once production has stabilized to normal levels in order to catch up to the accumulated delay.

Alternatives to shipping

Despite the challenges, the alternatives to shipping remain few and these sectors have been similarly hit. The primary alternative is air freight which is costlier, but faster than shipping, and yet air transport has also been negatively impacted in this environment. The rates for air freight sending cargo across the Pacific Ocean tripled by late March 2020 due to suspension of service to China from many airliners.8 Cancellations and reductions of passenger flights have drastically reduced the capacity of freights since a large part of air freight makes use of lower deck of a passenger aircraft.

I would expect that once we see a return to more normal operations, the volumes of ocean freight will drastically increase since the majority of air freights available are currently being used for moving either PPE or medical equipment. Express LCL services that are available on many lanes and forwarders will thus be a good alternative for air freights.

The other form of transport between China and Europe left standing is that of rail. Despite border restrictions, as most of the network has more or less shut down since the start of COVID-19, I believe that railways have been able to run relatively unscathed. This is creating an opportunity for the emerging network to become a larger part of companies’ shipping solution. The railways between China and Europe are eight-times cheaper under normal circumstances. In the current situation, transit times are longer in both air and ocean freight and elevated air freight price, freight transportation in trains is becoming more of a feasible option for companies that need to send and receive goods between the regions as fast as possible.

The trucking industry has also faced drastic impact due to COVID-19. While prices of diesel have become cheaper and roads are open, borders that are usually free-flowing thoroughfares of trade have been shut. In China, most of cities were locked down, preventing drivers from travelling. In Europe, most of the national borders are technically open to trade, but health inspections of drivers are causing lengthy delays. Looking at the alternatives, I expect that the available capacity, cheaper freight rates and overall better carbon footprint of shipping will ultimately give shipping an advantage during recovery.


Of course, I can’t predict with certainty the duration of the current situation and its impact. Reduced available capacity, burden on equipment availability, congestion in specific ports and related surcharges are faced all over the world all combine to create formidable challenges for the shipping industry as to other sectors. More structural blank sailings have been added to manage the supply and demand, around 11 percent (320 of 2693) of container ship sailing have been cancelled in May on all main tradelines.9

It is speculated that demand for container transport is expected to drop by at least 30 percent, and remain weak for the rest of the year.10 From my discussions with business leaders in this sector, I believe that the disruption due to COVID-19 will act as catalyst for a major redesign of the shipping industry, especially as the evident defects of the global supply chain network have ultimately been revealed during this pandemic. The dependence on particular regions for supplies has raised the risks on the entire supply chain and companies will start looking for restructuring of their supply chains as a result, and the shipping industry needs to be prepared for such structural change. Ports and shipping companies should increase the drive to achieve long-discussed goal of digitalization and innovation within the industry. In order to enable better collaboration between stakeholders and to increase end-to-end supply chain management, investment in intelligent freight technologies is a must. The shipping industry should learn to manage efficiency, capacity and cash in a better way in order to secure its position in the new reality ahead.


  1. Shipping and World Trade
  2. World Container Index - 18 Jun
  3. IMO 2020 + Covid-19 = 0
  4. China Exports
  5. China Caixin Manufacturing PMI
  6. United States - Economic Forecasts - 2020-2022 Outlook
  7. Blenkinsop, P., 09 April 2020. Coronavirus could reduce world trade by up to a third, according to the WTO.
  8. The New York Times. Retrieved 23 March 2020
  9. Global Container Ship Trade Suffers Capacity Drop
  10. Clark , A. & Park, K., 22 April 2020. Global Container Shipments Set to Fall 30% in Next Few Months.

The headline Manufacturing PMI is a composite of five of the survey indices. These are New orders, Output, Employment, Suppliers' delivery times (inverted) and Stocks of purchases. The ISM attributes each of these variables the same weighting when calculating the overall PMI, whereas Markit uses the following weights: production (25 perccent), new orders (30 percent), employment (20 percent), supplier deliveries (15 percent), and inventories (10 percent). The points mentioned are as per the Markit Economics.

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