A year ago, shipping experts unveiled their projections for 2020. Little did they know how short their forecasts’ shelf lives would be. Pre-COVID outlooks were practically worthless by February.
The pandemic reshaped cargo demand across all shipping segments, but for two in particular: container shipping and tanker shipping.
The following is a look back at American Shipper’s coverage of the crisscrossing roller-coaster rides for container shipping and tanker shipping in 2020.
Container shipping: The fall
The pandemic cycle began with a cargo supply-side shock: the abrupt shutdown of the Chinese export system in January and February. This caused box volumes at sea to suddenly collapse.
But the Chinese supply-side shock was short-lived. Factories came back online quickly and outbound volumes rapidly rebounded.
The bigger threat to container shipping was the cargo demand shock from COVID lockdowns in Europe and the U.S.
This spurred concerns in March and April that volumes could collapse even more so than during the financial crisis and that carriers could face “life-threatening” financial losses.
However, unlike in previous demand slumps, carriers deftly controlled their capacity. They “blanked” (canceled) up to 20% of sailings on mainline trades in the second quarter.
They refrained from price wars and used blank sailings to bring ship capacity in line with lockdown-stricken demand.
Container shipping: The rise
As a result, the disaster scenario for carriers was averted. It became clear that carriers would minimize their losses.
Then came another surprise: Cargo demand roared back in the second half, causing freight rates to skyrocket.
Carriers were not just going to minimize losses; they were going to rake in huge profits.
A confluence of factors drove demand:
- Restocking to replenish inventories
- Holiday cargoes
- A shift from retail-store sales to e-commerce, pushing more time-sensitive cargoes through the West Coast
- A shift by consumers toward spending money on goods that they’d previously spent on services — supported by a fiscal stimulus that allowed consumers to keep spending despite massive job losses.
The dramatic rebound in cargo demand caught ocean carriers by surprise.
They reinstated all previously blanked sailings. They also chartered as many extra vessels as they could, pushing charter rates “through the roof”.
As 2020 comes to a close, the cargo boom remains in full swing. Container industry stocks are riding high. As of Monday, the shares of Matson and the American depositary receipts of Maersk were up 39% and 56% year to date, respectively.
Tanker shipping: The rise
The pattern in tanker shipping is almost a mirror opposite of containers. Many executives, investors, and analysts initially thought COVID would be a bonanza for tankers.
Instead, tankers are struggling to break even and face an extended slump. Back in March, COVID caused the price of crude to collapse.
That, in turn, sparked a disagreement within the OPEC+ coalition on production cuts. In response, Saudi Arabia began pumping at full throttle.
Saudi transport demand pushed spot rates for larger tankers over $200,000 per day.
With fuel consumption constrained by COVID and OPEC+ production surging, excess crude overflowed into floating storage, tying up tanker capacity.
The more tankers used for floating storage, the fewer available to bid on voyage contracts and the higher the spot rates.
In late March, Robert Macleod, then-CEO of Frontline, described the floating-storage situation as a “once-in-a-generation” opportunity.
By April, the floating-storage effect was boosting product-tanker fundamentals as well.
Tanker shipping: The fall
But spiking rates and stock sentiment fizzled faster than expected.
First, the OPEC+ dispute was short-lived: production cuts resumed in May. Second, oil prices began recovering in May, undermining incentives for traders to put oil in floating storage.
Floating storage stopped building faster than expected. Third, transport demand began to weaken seasonally in June, prompting rates to collapse.
A rapid economic recovery would theoretically pull-down floating inventories fast; the market would then revert to normal dynamics, and the recovery would drive higher transport demand.
It didn’t happen. Rates crashed further in September, sinking below operating expenses. Demand has not rebounded, with air-travel shortfalls a continuing headwind.
Floating storage did not unload quickly, leaving a stubborn overhang on transport demand. And while there has been some winter uplift, late-2020 rates are down precipitously from five-year averages.
The tanker outlook for 2021 is a reverse image of the container outlook.
Just as there are risks but no clear end in sight for the container boom, there are opportunities but no clear recovery in sight for tankers.
Some analysts don’t see a tanker market rebound until 2022.
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Source: American Shipper
