The Dow and US stocks plunged on Monday in its worst decline since 1987. It then went back up again yesterday seemingly after the US government presented measures to fight the coronavirus fallout, with a proposed $1 trillion economic response package. Last week, the Dow went from an all-time high to ‘bear’ territory’ in only 19 trading days, ‘regular; (87 octane) gasoline prices dropped close to US$ 2.00/gallon in the United States as crude oil posted the biggest weekly plunge since 2008. And then the Russians and Saudis waged a price war as the coronavirus crushes global oil demand. Everything points to a recession in the making.
Despite MCS’s MSC Mia (23,756 TEU) and MSC Nela (23,656 TEU), the first 20,000+ TEU vessels to arrive in the United States, to re-position 6,000 TEUs of badly needed empty boxes, the news for the box carriers is mixed. Plus, we have to mention that MSC has just (March 17th) introduced an “Emergency Imbalance Surcharge” for sailings from April 1.
SeaIntelligence Consulting guru Lars Jensen said last week he expects the carriers to suffer a potential 17m TEU shortfall in 2020, assuming the same drop in volume as the 2008 financial crisis. That equates to a revenue gap of some U.S$ 1.7 – 2.55 billion, depending on the average revenue per box used.
VLSFO and ISO380 Spread Narrows
The spread between VLSFO (0.5% S) and ISO380 (3.5% S) has drastically narrowed. As our friends at Ship and Bunker reported, the Global 20 Port spread on the 17th of January (pre-CNY, before the virus spread through Wuhan and China) was U.S.$314.50/Metric ton, while the 12th of March spread had dropped to $104/MT.
Thus, the crude oil price collapse has the instant and positive ramifications of lowered bunker costs for the box carriers, regardless of whether they utilize scrubbers or VLSFO.
But while lower fuel prices assist both box carriers and those who drive, will lower crude prices threaten the economics of sustainable energy? It’s only been a week since the Saudi-Russian price war began, but already the box carriers seem to be rethinking their previous excruciating VLSFO vs Scrubber debate: only two weeks ago OOCL’s just-announced 5@ 23,000 TEU new builds were going to burn VLSFO, Friday they indicated they may instead use scrubbers, enabling them to burn cheaper HSFO. One might have hoped for them to consider LNG, with its obvious price, efficiency, and IMO-2020 advantages, thereby side-stepping the open vs. closed loop scrubber debate.
When Will the Rebound Happen?
When/if trade improves, will box volumes increase to their pre-virus levels? That’s a question of how well the world economies rebound, and as the United States, UK (finally) and several European countries are currently shutting schools, museums, events, as well as canceling all professional, collegiate, and scholastic sports, everything points to a global recession.
According to S&P Global, the coronavirus outbreak is plunging the world's economy into a global recession. The credit-rating agency, told CNN Business on Tuesday that "... the virus has severely disrupted economic activity -- far more drastically than previous estimates. It said the damage to economic activity is about to get worse in United States and Europe.”
"The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilization has begun," said S&P Global's Chief Economist Paul Gruenwald (to CNN Business). "Europe and the United States are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year."
Just a couple of days ago, Spain and France announced country-wide lockdowns, a few countries closing down borders and other European countries closing schools and canceling all sporting events. In Italy, the worst-hit country outside of China, public life has all but shut down, with restaurants and cafes closed for two weeks and police issuing fines to anyone caught in certain areas without good reason. France is also following suit.
The box carriers and shippers are only now digging out from how badly trade was affected when the Chinese dockworkers, warehouse men, and truckers were unable to report to work. One wonders what will result if the same worker issues occur in Felixstowe, London Gateway, and the other UK ports, while the US and EU economies come to a halt.“Interesting” might not be a strong enough word to describe the upcoming months. Let’s stay tuned.