Commentary: COVID-19 makes waves for international shipping
The COVID-19 pandemic, the slump in global trade and the current collapse in oil prices are having a profound impact on international shipping — and not always in the ways we might expect, says Sam Bateman.
WOLLONGONG: The impact of the COVID-19 crisis on the cruise ship industry has attracted much attention in recent weeks.
But the associated global economic slowdown means that the impact of the crisis on other parts of international shipping will be even more severe.
According to data from UNCTAD, passenger ships — including cruise liners and ferries — constitute only about 0.4 per cent of international shipping by deadweight tonnage (DWT).
Bulk carriers are the largest component at 42.6 per cent, followed by oil tankers at 28.7 per cent, container ships at 13.4 per cent and other types (including chemical tankers and gas carriers) at 11.1 per cent.
These cargo-carrying vessels are employed very differently. Container ships generally work to fixed schedules, tankers to long-term contracts, and bulk carriers often on single-voyage contracts.
Passenger vessels are usually quite small while oil tankers and bulk carriers can be very large vessels — over 300,000 DWT or more. But the largest cruise liners now being built are comparable in size. Some have a gross tonnage over 200,000 and can carry over 5000 passengers with about 2000 crew.
Whether these mega-ships will still have worthwhile employment at the end of the COVID-19 crisis is yet to be seen.
ENGINES OF GROWTH
Seaborne trade and international shipping continue to be the engine of economic growth. According to UNCTAD, the world economy grew at 2.3 per cent between 2018 and 2019 while merchandise trade grew at 3.1 per cent and international seaborne trade at 2.7 per cent.
Four-fifths of world merchandise trade is carried by sea.
The fall in the growth of seaborne trade in 2018 to 2019 compared with the previous year’s growth of 4.1 per cent was largely due to only a small increase in tanker trade over the year.
COVID-19’S PROFOUND EFFECTS
The COVID-19 pandemic, the slump in global trade and the current collapse in oil prices are having a profound impact on international shipping — and not always in the ways we might expect.
For example, demand for tankers is soaring as countries and oil companies seek to contract large vessels to use as floating storage facilities.
Container and bulk carrier shipping are experiencing major downturns in demand. Container ship operators are cancelling sailings in order to minimise losses, thereby eroding service reliability.
READ: Commentary: An Italian port dreams of being the Singapore of the Adriatic Sea, as it awakens to China’s siren call
More than 10 per cent of the global container fleet is now anchored as markets fall.
Demand for dry bulk shipping is also down due to disrupted commodity supply and economic problems in major destinations. In the first quarter of 2020, the Baltic Dry Index — a key indicator of bulk shipping demand — slipped 43 per cent with the rapid spread of COVID-19 around the world.
Unemployed ships are either laid up with skeleton crews or, in the case of bulk carriers, drifting at sea fully crewed and waiting for another contract. This can expose them to the risk of armed robbery.
The downturn in international shipping, along with the current restrictions on international travel, is also having a serious effect on seafarers. Every month around 100,000 seafarers are rotated on and off vessels worldwide. These crew changes are not possible in the current circumstances.
Thousands of seafarers are now stranded onboard for periods well beyond their contracts, which can last up to nine months or even a year.
Seafarers with expired contracts are looking forward to getting home, but they may be unable to get a new contract when they do so. This will have knock-on effects for many developing economies.
For the Philippines in particular, the wages of around 400,000 people serving at sea, some in senior positions, are an important input to the country’s earnings — in 2018 these workers sent home US$6 billion in remittances.
Cruise liners are now being used to return seafarers, largely Indonesians and Filipinos, to their home countries. More than 20 cruise liners are currently anchored in Manila Bay awaiting approval to land over 5600 Filipino seafarers to their homes.
READ: Commentary: Myanmar's COVID-19 cruise-ship moment as thousands of migrant workers flock back home
PIRACY AND ARMED ROBBERY MAY RISE
The depressed market for shipping may also lead to increased piracy and armed robbery against ships. The global financial crisis was a significant factor in explaining increased piracy and armed robbery both off Somalia and in Southeast Asia.
Many unemployed ships were left sitting idly at sea in high risk areas — in Southeast Asia in particular, ships laid up at anchor with reduced crews, were highly vulnerable to sneak attacks.
This situation may be developing again now. The report of the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia for the first quarter of 2020 recorded a three-fold increase in total incidents compared to the same period in 2019.
Sixteen of these incidents — 55 per cent of the total — occurred while ships were at anchor or alongside. This suggests that more vessels are either unemployed or spending more time in port.
Unlike the global financial crisis after which international shipping recovered fairly quickly, COVID-19 is likely to have more ongoing impacts on shipping.
The cruise industry may not return to the boom it was experiencing in recent years. Controls over contracting seafarers and obligations over their repatriation will probably be tighter, leading to increased costs for shipowners.
Shipowners will also be tempted to cut costs by employing cheaper crews, reducing crew numbers and lowering maintenance standards. This could increase the risk of accidents at sea, including collisions and ship losses, as well as increase the risk of marine pollution and vulnerability to piracy.
Underpaid and overworked seafarers are not conducive to maritime safety and security.
Sam Bateman is a Professorial Research Fellow at the Australian National Centre for Ocean Resources and Security (ANCORS) at The University of Wollongong. This commentary first appeared in East Asia Forum.