According to the Organization of Economic Co-operation and Development (OECD)’s latest Economic Outlook for 2020, the pandemic could over the course of this year follow two differing developmental paths, the virus could recede under control from Government, or it could rapidly erupt into a second wave.
Neither scenario is palatable, and neither will lead to greater economic activity as a result, as the OECD points out.
“Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances. By the end of 2021, the loss of income exceeds that of any recession over the last 100 years, outside wartime, with dire and long-lasting consequences for people, firms and governments.”
The pandemic is not the only trouble faced by the global economy with the tariff war between the US and China remaining very much a live dispute. The cost of this trade war to the US and China is vast, but the costs go beyond the borders of the two main protagonists, according to Dr. Kerstin Braun, President of Stenn International.
“The US-China trade war has come at a huge cost to businesses and now the coronavirus has exacerbated the financial toll. Insolvencies will continue, particularly for firms that were already indebted prior to the crisis and unable to qualify for further loans,” explained Braun.
Furthermore, the major issues prompting the dispute have not been resolved, in spite of the much-heralded agreement on Phase One of the deal, and those issues are the state aid afforded to Chinese enterprises and technology transfer from US companies.
Protectionist policies will harm global companies in both China and the US, said Braun. “With tariffs still in place, Trump thinks he’s hitting China when it’s down, but he’s hurting US companies as well. It’s counterproductive,” she added.
Braun was speaking following the results of a survey of businesses conducted by the Stenn Group that looked at the effects on Chinese, US and UK businesses of the trade dispute.
For the maritime sector, the pandemic has seen the virtual cessation of airline flights, reducing the amount of air cargo space available and a massive increase in the need for personal protective equipment. These two elements have buoyed demand for capacity, which the lines have managed deftly to their benefit.
According to US consultant Jon Monroe, “PPE (personal protective equipment) is becoming one of the major moving commodities in containers. Last month, California (yes, the state) signed a contract for 400 million masks to be manufactured in Southern China by BYD, the Chinese Car Manufacturer. Yes, you read that right, a Chinese car manufacturer is now supplying masks.”
According to Monroe, 16 US states reversed their policy on masks and with another 19 states to go demand for more PPE is expected to keep the Transpacific liner trade moving for some time.
In fact, Worldwide Logistics and other NVOCC’s suggest that PPE, and commodities such as furniture, exercise equipment and electronics are expected to keep moving now until the first week in October when China’s national holiday occurs. Online orders for food deliveries are up 400%, while online orders generally have risen 69%, said Monroe.
Braemar reported that China's industrial output “continued to recover as factories stepped up production”.
“Industrial output went up 4.8% year-on-year in July, according to data from the National Bureau of Statistics. On a month-on-month basis, industrial output rose 0.98%. In July, output by the manufacturing industry expanded 6% year-on-year. In the first seven months, industrial output went down 0.4% year-on-year,” said Braemar.
That growth has been reflected in demand, which has been developing in the US and as a result charter rates have continued to firm.
According to Braemar that has left “a lack of tonnage entering the market for demolition.
Last week the 4,943TEU Singapore Express, built in 2000 at Hyundai Heavy Industries, achieved a creditable US$365/Ldt on delivery at Alang for Hong Kong Convention compliant yards only. That was “Some US$30 over last done,” according to shipbroker Braemar.
The Nordic Macau a 3,421TEU geared vessel built 2014 was reported sold to Borealis Maritime for US$10.4 million. “
The broker said that although the vessel was just six years old, it was part of a series of Panamax beam ships “which explains the low price tag”.
That said Braemar views the “second-hand market is now fairly tight, with very few market candidates workable across any sector -if charter rates remain buoyant and more buyers return to the market looking to acquire tonnage, we expect a shift up in pricing across most sectors of 2,000TEU and upwards.”
For the time being the lines are making hay with strong demand pushing up Pacific rates. According to the Freightos Baltic Index (FBX) China to US West Coast rates remained above US$3,000/FEU this week even as lines are returning some tonnage to the Pacific on the back of that strong demand. Rates to the US from Asia were US$1,322/FEU in August 2019.
A similar demand spike is not being seen in Europe where rates this week, with the FBX reporting rates from Asia to North Europe topping US$1,605/FEU, around US$45/FEU higher than this time last year.
It is not a given that the Pacific trade will continue its bull run into October. Any kind of normalisation of trade will necessarily have to wait until after the US elections on 3 November, accepts Braun.
“Any phase two deal will be long-awaited good news for global trade, which took a hit from the tariff war in 2019 to the tune of US$420 billion in lost revenue for exporters. For businesses, it will help to provide some relief at a time when firms are seriously struggling to deal with the financial impact of Covid-19,” she added.