Ann: Business Update, page-120

How will the Coronavirus impact global trade and shipping industries?

Whilst the World Health Organisation downplayed the impact of the Coronavirus on global trade, China’s trading partners will experience an effect to some degree. Given that China is the world’s leading exporter (and Australia’s most important trading partner), there will be significant impacts on global supply chains and international markets.

China plays an integral role in the shipping and freight industries. This is especially true for the city of Wuhan located on the Yangtze River, arguably the busiest waterway in the world. Over two billion tonnes of cargo are carried through ports on the Yangtze River every year (accounting for over 80 per cent of China’s waterborne traffic). Further, Wuhan is a supplier of coal, steel and crude oil with tonnage exceeding into the thousands. There is no doubt that the global shipping industry will suffer from this outbreak.

Delays in manufacturing

After Chinese New Year, it usually takes around three to four weeks for Chinese factories to re-open. It’s already been made clear that this period will be extended, with workers instructed to take an extra 7-10 days of leave. This will mean delays in production and, unfortunately, missed delivery dates for many international importers.

Increased ‘blank sailings’

‘Blank sailings’ in the shipping industry refer to a carrier’s cancellation of a voyage. This may mean that either one leg of a journey is cancelled, or the entire voyage is cancelled. It typically happens due to a decrease in demand for vessel services, which has no doubt been onset because of the Coronavirus. Several shipping companies (such as Maersk) have already announced blank sailings due to the extended holiday period in China. The result will mean less services to all Australian ports.

Disruptions in port operations

The ports in China have not completely closed but shipyards have been majorly affected with slowed vessel turnaround times, the number of deliveries significantly dropping and dozens of ships falling behind redelivery schedules. There is also the risk of quarantine at ports, which may stop port operations completely. John Park of the Freight & Trade Alliance (FTA) suggested that importers may start to incur detention or demurrage costs because of the delays, or extra costs to move containers pending clearance.

It has been confirmed that restrictions are being put in place for any vessels arriving from China to Australia that departed on or after February 1st. They will not be allowed to enter an Australian port until 14 days have passed since departure date, and the coronavirus is therefore deemed to no longer be a potential risk.

Shipyards are also reportedly turning around ships due to shortages of labour. These port operations will likely delay importers’ deliveries. David Amezquita of Container Xchange commented that the outbreak will “lower utilisation rates for shipping lines and increase costs on routes” given that businesses are concerned that employees in China “will not work at mills, refineries, factories and terminals due to the quarantine situation.”

Delays in air cargo

The airline industry seems to have been hit the hardest so far. British Airways announced it would completely suspend all direct flights to and from China. Other major carriers such as United Airlines and Air Canada also announced that they would reduce flight numbers. Qantas have also cancelled their direct flights (Sydney-Beijing and Sydney-Shanghai) from the 9 February until the 29 March 2020.

Staff such as cargo handlers, manufacturers and truck drivers are not able to return to work due to the extended holiday period, meaning supply chains will be severely affected.

Lost profits

Another unfortunate long-term effect of the Coronavirus may be a fall in profits, especially during the first two quarters of 2020. If the outbreak continues, container volumes across the Pacific Ocean may fall significantly. This may not only lead to lost profits for shippers, but also for importers whose stock may not arrive on time.

The impact on industries closely tied to shipping

Shipping is intertwined with dozens of other industries all around the world. Industries such as tourism, retail and transport will feel the short-term effect on the coronavirus whilst industries like consumer goods, raw materials and industrial goods will feel the impact in the long term. There are certain commodities supplied from Wuhan that simply must travel by the river (including coal, iron ore and steel products). The price of oil has also already reportedly fallen. All of these industries will no doubt soon feel the impact of the global epidemic.