The Adverse Influence of the Coronavirus on the Shipping Sector
by Yasuhiro Okamoto
1. The Adverse Influence of the Coronavirus on the Shipping Sector
The spread of the novel coronavirus (COVID-19) has made a massive impact on almost every sector of the economy and, without exception, the shipping industry has also been in the middle of economic turbulence. According to the media, container traffic at China’s biggest ports (Shenzhen, Shanghai, Ningbo, Guangzhou, Xiamen, Tianjin, Dalian, and Qingdao) fell for two weeks in a row in early April after a drop in overseas orders for the nation’s exports [Leng, 2020] The causes for decreased container traffic were that many companies started cutting back orders and postponing the delivery of goods due to the coronavirus, and shipping companies also reduced their capacities. For example, Ocean Network Express has announced revised schedules since February to mitigate the impacts of the pandemic.
2. The Situation of the Port of Los Angeles
Like China’s main ports, the Port of Los Angeles is the busiest in the US by both container volume and cargo value. However, while it has faced a similar situation to China, the Port of Los Angeles has also encountered other unfavorable circumstances around container traffic at their port. The table below shows the container counts (TEUs) for the Port of Los Angeles, which were last recorded in March. As we can easily imagine, the total volume of containers in March largely decreased compared to the previous year. In particular, containers to the Port of Los Angeles from nations in the Pacific Ocean and from China account for the biggest portion of reduced shipments.
The Chinese government has introduced various preventive measures to suppress the expansion of coronavirus, and has also slowed down economic activity. In April, there were signs of economic recovery in China, and factories restarted operations and resumed exporting goods. On the other hand, because of the coronavirus pandemic in the US, city lockdowns and curfews have led to closures of freight warehouses, and freights have been left without being picked up at these locations. Additionally, in conjunction with the decline of shipping capacity, empty containers have piled up without being returned to Asia (China). Therefore, the Port of Los Angeles has overflowed with uncollected and empty containers
3. The Issue of Cost Burden
Another significant issue caused by the coronavirus for the shipping industry is determining who shall bear the additional cost to vessels from quarantine restrictions or delays while waiting for port authorities to grant clearance to enter port. Many owners of cargo vessels have now asserted that the force majeure clause is applicable in cases of detention or delay of cargo caused by the coronavirus. Consequently, owners of cargo vessels and shipping companies have entered into severe disputes.
To avoid this, Japan P&I Club has recommended to include infectious disease clauses that are comprehensive and clearly allocate rights and responsibilities in the event of an outbreak to Time and Voyage Charterparties, which have been produced by BIMCO (Baltic and International Maritime Council).
The cost of freight cargo shipments has not changed much from February to March, and it’s clear that the decline in freight capacity has contributed these locked rates. Additionally, the issue of empty containers in many ports may be a potential hindrance for a smooth recovery of the global economy.
Also, as I mentioned before, owners of cargo ships have faced an increase of container storage and drayage costs. Furthermore, owners must negotiate with shipping companies to share costs caused by the delay. We may see harmful repercussions of these issues reflected in our economic activities.
Leng, S. (2020, 4 15). Coronavirus: container traffic at China’s top eight ports plunges in early April as pandemic hits overseas orders. Retrieved from South China Morning Post: https://www.scmp.com/economy/china-economy/article/3080041/coronavirus-container-traffic-chinas-top-eight-ports-plunges
The Port of Los Angeles. (2020, 4 10). Container Statistics . Retrieved from https://www.portoflosangeles.org/business/statistics/container-statistics