Shipping and Freight Review 2020 – the year that was and wasn’t

I am sure many people and companies around the world are glad to see the stern of 2020 as it sails away, hoping for a better 2^nd year of the new 20s decade..

Globally, 2020 will be long remembered as the year when the world tilted on its axis, or that’s how it felt for everyone, throwing the entire world into chaos, the likes of which has never been seen before, at least by many who are alive today..

The catalyst for this chaos around the world is a teeny tiny microscopic virus called SARS-CoV-2 with a diameter ranging between 60 nanometers (nm) and 140 nanometers (nm) spreading a disease known as COVID-19..

COVID-19, one of the most rapidly spreading pandemics we have seen, has and is reshaping global trade and the business of shipping, freight, maritime, logistics, supply chain and trade as we know it..

The world economy is experiencing a deep recession amid this continuing pandemic on the back of country after country (starting with China) shutting down its economic, commercial and social activities affecting all realms of business..

The Great Lockdown, as it has been termed by The International Monetary Federation (IMF) continues to push the global economy into recession to levels not seen since the 1930s..

From a shift in global supply chains, shipping patterns, and exceedingly high demand, to panic buying and extraordinary freight rates, 2020 has shown that the industry will never be the same again and there will be some fundamental changes in the industry going forward..

While the pandemic reinforced the need for a strong maritime and supply chain sector, it also laid bare the weaknesses in the industry in terms of its ability adapt to emergencies like this..

It also brought to the fore, the human element in the form of challenges faced by over 300,000+ seafarers stranded on board various ships and ports awaiting crew changes while governments and regulatory bodies like the IMO haggled over nominating seafarers as “key workers”..

Trade

While the global trade shows signs of bouncing back from a deep, COVID-19 induced slump, economists at the World Trade Organization (WTO) have cautioned that any recovery could be disrupted by the effects of the ongoing pandemic as it moves to the second wave in some countries and a possible third wave..

The WTO has revised its forecast to a 9.2% decline in the volume of world merchandise trade for 2020, followed by a 7.2% rise in 2021, a growth seen more as a “weak recovery” scenario than to a “quick return to trend”..

The estimates by WTO has taken into account an unusually high degree of uncertainty since they depend on the evolution of the pandemic and the responses of the various countries to it..

Current data suggests a projected decline for the current year less severe than the 12.9% drop projected by the WTO previously based on April numbers, but a good trade performance in June and July have brought some signs of optimism for overall trade growth in 2020..

The main difference between the trade decline due to COVID-19 vs the 2008-2009 financial crisis is that economic context is different due to which the volume of world merchandise trade is only expected to decline around twice as much as world GDP at market exchange rates, rather than six times as much during the 2009 collapse..

As per UNCTAD’s Review of Maritime Transport 2020, COVID-19 hit world trade after an already weak 2019, in which global maritime trade lost further momentum as trade tensions continued to bite with the imposition of tariffs said to have cut the volume of maritime trade by 0.5% in 2019..

WTO statistics show a generalized downtrend in 2020’s Q3 exports growth, except for some East Asian economies compared to Q3 2019..

Growth in maritime trade stalled to the lowest levels since the 2008-2009 downturn settling at 0.5% growth which was less than the 2.8% growth in 2018..

Maritime trade volumes reached 11.08 billion tons helping container port traffic increase by 2% which was a drop of 5.1% from the previous year..

Container shipping showed impressive growth compared to other cargo types over the years with around 811.2 million TEUs being shipped worldwide..

Source : UNCTAD – Development of international maritime trade by cargo type, selected years

While global containerized trade, has grown between 1996–2020 in TEUs with a 262% increase, the annual percentage change has dropped by around 70%..

Source : UNCTAD – Global containerized trade, 1996–2020

On the global maritime trade side, as per UNCTAD, some of the salient features were :

1. Iron ore trade fell for the first time in 20 years, by 1.5%, due to disruptions such as the Vale dam collapse in Brazil and Cyclone Veronica in Australia.
2. Brazil overtook the US as the world’s largest seaborne grain exporter.
3. As of March 2020, an estimated 20% of global trade in manufacturing intermediate products originated in China, up from 4% in 2002.
4. The deployment of larger container vessels often increases total transport costs across the logistics chain. The capacity of the largest container vessel went up by 10.9%, but it’s mainly the carriers that benefit from the economies of scale offered by larger vessels, while ports and inland transport providers don’t necessarily benefit.
5. Ports are showing more interest in strengthening connections with the hinterland to get closer to shippers and ‘anchor’ cargo volumes – in line with the push for port-centric solutions over recent years.
6. China, Greece and Japan remain the top three ship-owning countries in terms of cargo-carrying capacity, representing 40.3% of the world’s tonnage and 30% of the value of the global fleet.
7. Liberia, the Marshall Islands and Panama remain the three leading flags of registration, in terms of carrying capacity and of value of the fleet registered. As of 1 January 2020, they represented 42% of the carrying capacity and 33.6% of the value of the fleet.
8. The flags of Iran, Taiwan (province of China) and Thailand registered the highest increases in terms of deadweight tonnage. The number of ships flying the flag of Iran quadrupled – this was due to the pressure of sanctions, which led several registries to de-flag vessels associated with trade involving the country.

Shipping

In terms of shipping and ships/capacities, 2020 was a year of contrasts with Hapag Lloyd postponing its plans to build a new fleet of 23,000 TEU mega-ships due to the COVID-19 pandemic, while HMM unveiled its version of the world’s largest container ship – the HMM Algeciras..

Of course HMM had placed orders for these mega ships way back in 2018..

HMM has now received all 12 of its fleet of mega-ships with the unveiling of the 24,000 TEU HMM St Petersburg in September 2020 ending a 2 year wait for these Ultra Large Container Ships, all of which are deployed on HMM’s Asia Europe Service..

In terms of Global container alliances there has not been that much of a change compared to 2019 as can be seen below except that HMM increased its market share quite nicely mainly due to above mentioned deliveries of ships..

COVID-19 apart, 2020 will also be remembered as the year in which ocean freight rates spiked to extraordinary levels and continues to rise even as of this article..

Possibly due to the panic buying created by COVID-19 and/or a stronger than expected recovery in demand following the slowdown of Q2 2020, there has been strong demand for the movement of goods from Asia to USA, Europe and the rest of the world..

This has resulted in the activation of all available ship tonnage and containers to extent that in the 3rd quarter of 2020 there has been an unprecedented demand leading to extraordinary freight rates..

As you can see below, the Global Container rates went up 106% between May and Dec 2020 and there is talk about more increases.. In some trades, rates went up 4 times in a single month in the recent past in 2020..

A combination of these increased rates created by the growing demand and the lower bunker prices assisted the carriers to increase their cumulative operating profits to around $11 billion which is an increase of 16%..

Some of the performances of some of the big lines in the world is shown below..

Carrier financial results compiled by DHL shows the comparison of the financial results between 9 months of 2019 vs 2020..

The increase in demand and freight rates also resulted in carriers being accused of deliberately curtailing supply of ships and containers..

This led to China’s Ministry of Transport (MOT) and the US Federal Maritime Commission (FMC) warning container lines to add capacity on the booming trade lanes (especially the Trans-Pacific route) and put a cap on freight rate increases..

Although there is a high demand for space, lack of containers in Asia has created a situation where some of the ships are forced to sail light..

This seems to have created a controversy of a different kind as shipping lines are seemingly resorting to repositioning empty containers instead of shipping out full exports from around the world to Asia to ensure that the empties are available quicker in Asia..

Some of the shipping lines are said to be moving in excess of 30,000 TEUs of empty containers in the direction of Asia every week and also using chartered ships for the purpose of empty evacuation when their own ships are full..

At the end of Q3 2020, Hapag Lloyd is said to have moved in excess of 165,000 TEUs across 44 sailings dedicated to empty loads..

Digitalisation

2020 was also the year of strong gains in the digitalisation of the shipping and freight industry..

In the words of Mr.Kitack Lim, secretary general, International Maritime Organization, “Digitalisation is a crucial part of shipping, without data exchange or sharing we cannot achieve the goal of autonomous shipping. We have to expand data exchange and sharing between our member states”..

The restrictions imposed on global trade and cargo movements by the COVID-19 pandemic has painfully demonstrated the need for increased digitalisation in the shipping and freight industry to improve efficiency of processes..

UNCTAD has warned that global maritime trade will plunge by 4.1% in 2020 due to the unprecedented disruption caused by COVID-19 and that the short-term outlook for maritime trade is grim and is predicting the pandemic’s longer-term impact as well as the timing and scale of the industry’s recovery is fraught with uncertainty..

As per UNCTAD’s estimates, maritime trade growth is expected to return to a positive territory and expand by 4.8% in 2021 based on assumption that the world economic output recovers.

But it also highlights the need for the shipping and freight industry to brace for change and be prepared for a transformed post-COVID-19 world.

Digitalisation is expected to play a major role in a transformed shipping and freight industry post COVID-19..

The pandemic has really strengthened the case for digitalization and minimising/eliminating paperwork in the shipping industry, including in ports, and bringing to the fore the need for standards and interoperability in electronic documentation.

Digital processes such as eBill (Electronic Bill of Lading), Blockchain based payments, Smart Containers, Smart contracts, etc have developed and progressed much quicker than ever expected/anticipated..

Not just on the supply chain side, even on the side of ports, the need for digitalisation has become very evident..

While a few of the world ports have taken advantage of the benefits and opportunities offered by the Fourth Industrial Revolution and transformed themselves into “Smart Ports”, there are several other ports on important trade routes who continue to rely on archaic practices and paper based transactions..

IMO has reported that only 49 of its 174 member states have signed up for Port Community Systems which are essential for the digital transformation of ports and terminals..

2020 has highlighted the importance and need for inter-governmental organisations, governments and industry stakeholders concerned with global maritime trade, shipping and freight industry and logistics to work together to accelerate the pace of digitalisation so that port communities across the world can follow common electronic and data standards..

Not just among ports, container lines are seemingly coming together through common platforms like DCSA (Digital Container Shipping Association) and TradeLens to create data standards that complies with contractual and regulatory obligations and provision of digital freight solutions to the industry..

Digital Container Shipping Association (DCSA) which is a neutral, non-profit group established to further digitalisation of container shipping technology standards, in conjunction with its nine member carriers – MSC, Maersk, CMA CGM, Hapag-Lloyd, ONE, Evergreen, Yang Ming, HMM and ZIM recently published data and process standards for the submission of shipping instructions and issuance of the bill of lading (B/L)..

TradeLens is a digital alliance created through the co-operation of major shipping lines like Maersk, Zim Lines, PIL, CMA CGM, MSC, Hapag Lloyd and ONE as an open and neutral industry platform underpinned by Blockchain technology making this platform the largest blockchain-based data platform handling data of nearly half of the world’s ocean container cargo..

The TradeLens Agreement published by the FMC came into effect as of the 6^th of February 2020 with CMA CGM, Maersk, Hapag Lloyd, MSC and ONE listed as the Parties to the Agreement and IBM and Maersk GTD Inc listed as Platform Providers..

Maritime Disasters

While this was not as bad as 2019, 2020 had its own fair share of maritime disasters but this year, authorities seem to have stepped up things a notch in terms of responsibility with ship Captains being personally held accountable for these disasters..

Case in point is the APL England case where the Master was charged for offences relating to pollution and/or damage of the Australian marine environment as a result of poor cargo loading but was allowed to return home on certain bail conditions..

The APL England, a 5,780 TEU capacity containership lost around 40 containers off the coast of New South Wales in Australia and many containers had collapsed within the stacks on board the ship..

In another incident, the MV Wakashio left China on 14 July, heading for Brazil.. The vessel, owned by Nagashiki Shipping and operated by Mitsui OSK Lines Ltd, hit a coral reef, Pointe d’Esny, Mauritius on 25th July, 2020 and sank..

Here again, the Captain of the Wakashio was arrested and charged and currently faces a possible 60 year jail term for failing to safely navigate the vessel in Mauritius waters..

The ONE Apus became the latest and hopefully the last casualty of maritime disaster for 2020 when the ONE APUS a 14,052 TEU containership built in 2019 and operating on Ocean Network Express’s (ONE) Far East Pacific 2 (FP2) Service suffered multiple stack collapse on board due to severe weather conditions while the vessel was enroute from Yantian in China to Long Beach in USA..

It has been reported that the vessel encountered gale-force winds and large swells around 1,600 nautical miles northwest of Hawaii, USA and these severe weather conditions caused the vessel to roll heavily resulting in an estimated 1,816+ containers to be lost or dislodged from its lashings..

Investigations are on and we need to see what the outcome of these investigations will be..

Human element

Apart from the upheaval to the global economy and the economies of various countries, the single biggest impact for the shipping industry from COVID-19 would have to the case of seafarers..

Due to COVID-19, more than 400,00+ seafarers were stranded across the various oceans and ships unable to sign off ships which meant extended stays away from families and a break..

Many seafarers lost their jobs as they could not sign on to the ships..

The IMO has made several calls to its member countries to designate and recognise seafarers as “key workers” regardless of nationality and exempt them from travel restrictions, so they could be allowed off and on ships and earn a living..

As per industry estimates, around 150,000 seafarers need to go on and off ships a month, in line with international maritime regulations and the requirements to ensure safety, crew health and welfare, and prevention of fatigue..

The pandemic has made this impossible and many countries are facing challenges at various local levels to meet/assist with this requirement..

The pandemic has exposed the plight of seafarers to the world in general with several seafarers having had to go without pay, food, water and other essentials on board ships as many ship owners also abandoned them..

These issues caused the ITF (International Transport Workers Federation) to says “Enough is Enough” with calls to seafarers around the world to down tools till the Governments changed their stance..

This plight has highlighted the recognition that seafarers require as an essential service because they ensure trade in essential goods, such as medical supplies and food, and they keep global supply chains alive.

IMO2020

Remember IMO2020..??

Well, in the days prior to COVID-19 and for the better part of the last 3 years, IMO2020 and its implementation from the 1^st of January 2020 was the hot topic and was expected to be one of the dominant narratives in determining 2020’s oil prices..

If you don’t even remember IMO2020, in April 2018, the IMO adopted an initial strategy on the reduction of greenhouse gas emissions from ships by at least 50% by 2050 compared to 2008 levels, thereby actively contributing to global action to combat climate change..

As part of IMO’s efforts to also reduce air pollution from shipping, on January 1st 2020 IMO’s MARPOL Annex VI (colloquially known as IMO2020) regulated to lower the current global limit for sulphur content of marine fuels from 3.50% to 0.50% was implemented..

But once 2020 arrived, it brought along with it the pandemic which seems to have eclipsed IMO2020’s significance and reduced its impact, casting these concerns in the background..

But this reduced impact may not be only due to the COVID-19 pandemic but could be a result of smooth implementation preceded by extensive planning and preparation..

It could also be due to the timely stockpiling of fuels in strategic locations ahead of the transition and the softening of global crude prices in December and January..

It has also been observed that the supply of very low sulphur fuel oil (VLSFO) has proven to be more than adequate, while the call on marine gasoil (MGO) as an expensive alternative has been less than expected..

Based on this success due to careful planning and favourable market conditions, the IMO is said to be taking it one step at a time while also bearing in mind that while IMO2020 deals primarily  the reduction of sulphur, further rule changes governing carbon emissions are under consideration to influence the cleanliness of marine fuel.

There has also been trials and calls for use of other alternative fuels like LNG and Hydrogen with CMA CGM seemingly leading the way in both with their joining the Hydrogen Council and also the continued operation of its LNG based container ships..

Conclusion

When the pandemic broke in China, the shipping and freight industry was one of the industries said to be most at risk due to the large number of physical and labour intensive activities involved in the industries and multiple closures across the world..

However, the industry seems to have bucked the trend and has shown above average earnings while business volumes have not suffered as feared..

Whatever 2020 started – whether it is the COVID-19 pandemic or the resultant actions caused by the pandemic, it is not over yet and is expected to continue at least till the end of the 1st quarter of 2021..

Some of the major concerns that the industry is facing in 2021

1. Uncertainty as to how long the pandemic will last and the effects of that on the global economy..
2. It has been reported that China is the only major economy expected to record GDP growth this year..
3. While the much hyped “Capacity Discipline” among carriers is expected to continue, the record freight rates may have breached the ceiling as some of the carriers seem to be bringing back capacity slowly and freight rates could be dropping..
4. The seafarer crisis still continues and many seafarers will miss Christmas and New Years with their family and loved ones and will probably have to spend it at sea, many without rest or even food..

As per experts and analysts in the industry a return to growth is envisaged only in the 2nd half of 2021 when some of the countries are expected to recover economically..

But this is of course dependent on the pandemic and its impact from the second and third waves that are said to be in progress now..

There are also several unknowns with some countries like South Africa experiencing a “variant” of the SARS-CoV-2 which seems to be spreading at a much quicker pace than the first wave, the many unknowns on the COVID-19 vaccines etc..

“PROCEED WITH CAUTION” seems to be the right phrase for the shipping and freight industry and businesses as we move into 2021..

I leave you with below greetings which I thought was quite apt in the current circumstance.. STAY SAFE AND HEALTHY..

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