Shipping’s Smaller Operators Are Most Susceptible to the Coronavirus Financial Impact

While big cargo carriers idle ships, niche operators critical to secondary trade lanes have little room to hide in a downturn

Regional shipping lines are a backbone of Asian supply chains, connecting smaller markets to the world’s big trading lanes.

Photo: SeongJoon Cho/Bloomberg News

This was supposed to be a year of recovery for the world’s oceangoing shipping companies, with trading peace in major markets providing a new period of stability for cargo carriers.

Maritime operators instead are facing their biggest challenge since the 2009 financial crisis. Many companies are struggling to stay afloat as the impact of the coronavirus outbreak sweeps across supply chains, slashing production in China and dealing a blow to global trade and the movement of goods from iron ore to consumer electronics.

Container shipping lines are idling vessels at a record pace this quarter and have slashed dozens of sailings on major trade lanes connecting Europe and North America to China, the world’s biggest exporter of manufactured products and largest importer of raw commodities.

Demand in China has been throttled by quarantines that have kept workers from returning to factories following the Lunar New Year. Ports are open but are backed up because trucks can’t get to the cargo terminals as a result of virus-related transport restrictions.

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2020欧洲杯APP“It’s a big, expensive mess,” said George Lazaridis, head of research at Athens-based Allied Shipbroking. “Ships still can’t call on ports, there are no trucks to move products and owners can’t send people to China to check on ship orders or repairs.”

Although big operators like Denmark’s A/S and China’s Cosco Shipping Holdings might absorb the financial toll by parking their ships, smaller companies that depend more fully on business with China have little room to hide.

2020欧洲杯APP“You still have to pay the ships you charter, crew salaries and keeping the ships in good condition,” said Lars Jensen, chief executive of Copenhagen-based industry analysts Sea-Intelligence Consulting.

2020欧洲杯APP“Dozens of smaller companies with niche routes from China to destinations like Japan, Korea and the Philippines could face mortal danger with their cash flow being hit in the second quarter,” he said.

Those companies may have only a handful of ships but they make up a critical piece of global trade, shuttling containers and commodities on regional trade lanes in the shadows of the big routes.

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Based in countries including India, Singapore, China, Thailand, Vietnam and Malaysia and the Philippines, these carriers ferry goods from secondary ports to the main gateways, connecting small markets to global trade. They have little cushion for a long slowdown, and their failure would hit a range of businesses that provide ships, fuel and other services to the operators.

“We are hoping for a boom when this thing blows off, but nobody knows when it’s going to happen,” a Greek owner that charters dozens of ships said. “If it spills over into the second quarter many will go belly up.”

Paris-based marine data provider Alphaliner said that as of last week, a record 2 million containers of shipping capacity has been idled. That is more than the 1.6 million 20-foot equivalent units, or TEUs, a standard industry measure of container capacity, sidelined after the collapse2020欧洲杯APP in 2016 of South Korea’s Hanjin Shipping Co. or the 1.5 billion TEUs of capacity idled in 2009 at the height of the financial crisis.

2020欧洲杯APPThe global fleet is roughly double what it was 10 years ago, but capacity reductions over the two-month period from the Lunar New Year will reach 700,000 boxes. That is more than double the 340,000 containers cut over the same period last year, when the U.S.-China trade war curtailed shipping demand.

“Over the past three weeks, some 30% to 60% of weekly outbound capacity has been withdrawn from the Asia-Europe and Transpacific trade, as well as from intra-regional routes,” Alphaliner said in a report released this week.

Sea-Intelligence expects the revenue loss for the world’s top 10 liners to reach $1.7 billion.

This might seem small compared with their combined $75 billion annual turnover but “the loss goes to a disproportionate degree straight to the bottom lines,” Mr. Jensen said.

2020欧洲杯APPThe effects are being felt across the supply chain from ports to shipyards and even conferences as shipping companies and their customers follow other businesses in pulling back travel.

2020欧洲杯APPAdding to the financial hit for carriers is that ship operators are absorbing large new fuel costs that have come with a mandate that began this year to comply with tougher air pollution rules.

“With big parts of the industry at a standstill because of the virus and the overall trade slowdown, it’s becoming difficult to pass on the fuel cost to cargo owners,” said an Asian owner of more than 15 small container vessels.

This owner said two of his ships are idle and nine have been waiting for six days to pick up cargo at backed-up ports in China.

“On March 15, I have loan payments due for eight vessels,” he said. “I don’t have the money and the Chinese lender doesn’t care about the virus. I actually don’t know if I can make it through the next couple of weeks.”

Write to Costas Paris at costas.paris@kinofilmz.com

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