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May 04, 2020

Containing damage

Imperatives for container companies as the world slows

Container traffic to plunge with global growth, recover only gradually

 

Global container trade is in for a major disruption due to the Covid-19 pandemic, which has hit major economies that account for around 55% of the global gross domestic product (GDP) particularly hard.

 

For 2020, S&P Global has projected a 2.4% contraction in world output compared with 2.9% growth in 2019. The non-linearity of the pandemic-driven disruption, and the possibility of a second wave of afflictions also create a downside risk to this forecast. The World Trade Organisation has already forecast a double-digit decline in trade volumes in nearly all regions of the world.

 

With the US (-5.2%) and Europe (-7.3%) severely affected, mainline east-west container lanes (Transpacific, Asia-Europe and Transatlantic lanes, which account for 40% share in the twenty-foot equivalent unit or TEU volume) are expected to be drastically hit as the lockdown has significantly affected supply chains there.

 

Indeed, the crisis may be deeper than the one the industry experienced during the global financial crisis (GFC) of 2008, given that the pandemic has caused a big drop in not just demand but also movement of people. Other key prompts are a 30-40% fall in container charter rate indices since the year’s start, a 10-15% decline in container throughput at Chinese ports during January-March, and increasing cancellations by liners and idle fleet.

 

CRISIL Research believes the extent to which the pandemic is controlled globally and, more importantly, the stance that major economies take towards imports will be critical to the pace of recovery in container trade post-2020. However, given that Covid-19 has badly hurt economies and consumer sentiment, and there is likely to be an attitudinal shift against globalisation, a slow and gradual recovery (against a V-shaped recovery witnessed after the 2008 crisis) in container trade seems more plausible.