Demand for Seaborne Trade to Remain Low for the Next 12 Months

Source: Nikos Roussanoglou

5 mins read

Shipping is being dealing with a double-edged sword lately, as it is faced with stringer environmental measures around the world, while also having to cope with a slowdown in seaborne trade, which is having an adverse effect on revenues. In fact, it is estimated that the industry’s freight rates won’t rebound for the next 12 months.

Source: Intermodal
Source: Intermodal

Ongoing effort

In its latest weekly report, shipbroker Intermodal said that “the global strive towards eco-friendliness and environmental sustainability in the shipping industry is mounting. There are currently almost 200 countries which are nearing an agreement on commitments aimed at reducing pollutant emissions in commercial shipping as part of the international effort to tackle climate change.

The World Trade Organization (WTO) predicts that global trade is expected to decrease by approximately 20% in 2020.

World Trade Organization (WTO)

Since 2018, ongoing negotiations have materialized under the umbrella of the UN and the International Maritime Organization (IMO), which have been primarily aimed at finding a common ground on how shipping as a whole will reduce its GHG and toxic emissions. From containers to tankers, the industry is in search of a way forward which will encompass a level playing field for all involved stakeholders”.

Source: Intermodal
Source: Intermodal

According to Intermodal’s SnP Broker, Mr. Zisis Stylianos, “currently, the main area of conflict among negotiators is the method and severity via which sanctions will be imposed in the event(s) of non-compliance to established and agreed emission benchmarks. European countries believe that the most environmentally harmful ships should be withdrawn by 2029 if they are unable to comply with all emission standards set forth. Other countries, such as China and Japan, consider Europe’s proposals to be too strict and recommend mechanisms for imposing fines or sanctions in the event of non-compliance with environmental regulations”.

HellenicShippingNews bulk carrier
Photo credit: HellenicShippingNews

How seaborne trade slowed down?

Mr. Stylianos added that “on the other hand, organizations such as the MEPC are seeking to and advocating for the imposition of even more stringent measures than the current ones. This is because they believe that shipping emissions will continue to rise in the coming years. The elevated market and investment uncertainty caused by looming regulatory restrictions coupled with the COVID-19 pandemic have significantly slowed down global seaborne trade.

Major raw material exporting countries, such as Brazil, are being significantly and adversely affected by the COVID-19 Pandemic

According to the IESC report, the pace of international economic activity remained sluggish throughout 2019, but in 2020 the data changed dramatically due to the COVID-19 epidemic. The World Trade Organization (WTO) predicts that global trade is expected to decrease by approximately 20% in 2020. Many shipping sectors have been faced with a sudden and sharp drop in demand, which in turn has significantly affected fares and revenues. In the dry bulk sector, average daily revenues between January and April 2020, compared to 2019, were lowered by more than 85%, 40% and 35% for Capesize, Panamax and Supramax vessels respectively”.

Source: Intermodal
Source: Intermodal

Lockdowns in Europe and North America

Intermodal’s broker added that “lockdowns in Europe and North America have had a significant impact on employment rates. The International Monetary Fund has announced that the COVID-19 pandemic will likely push the global economy into a worse recession than that of the 1930s and is warning that the prospects for a global recovery are extremely uncertain. The downturn in shipping is projected to last for more than a year and shipping activity is not expected to improve in the coming months.

Given that shipping is a global industry, the decrease in its performance is also due to the fact that much of its active is in the southern hemisphere, where major raw material exporting countries, such as Brazil, are being significantly and adversely affected by the COVID-19 Pandemic.

Source: Intermodal
Source: Intermodal

It remains to be seen whether the potential release of a new vaccine in the coming winter months will spark the commencement of a recovery phase in the maritime sector. Moreover, it will be interesting to see whether and to what extent the imposition of more rigorous emission regulations will affect the industry’s much needed recovery”, Mr. Stylianos concluded.

Source: Nikos Roussanoglou, Hellenic Shipping News Worldwide

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