Skip to main content
Horizons article 14 April 2021

Shipping winners and losers

  • Maritime energy transition
  • Digital transformation
Issue 57

How the global pandemic is playing out in maritime markets and global trade.

A year after the COVID-19 pandemic first wreaked havoc on the world, shipping has divided into winners and losers. It goes without saying that the estimated 1.5 million seafarers that keep the merchant fleet moving have suffered the most. Quarantine and immigration restrictions stranded some 400,000 seafarers on vessels working beyond their contracts at the May peak. That number has since halved to 200,000 but crewchange struggles remain unresolved as the pandemic’s third wave renews travel restrictions and closes borders across continents and countries.

The seafarers’ crisis isn’t specific to any shipping sector. Yet the economic turmoil, supply chain interruptions amid global restocking and a patchy, uncertain recovery led to unforeseen, disparate outcomes for containership, dry bulk and tanker trades. While governments’ lockdowns paralysed land and air-based transport, seaborne trade remains largely uninterrupted even as a third wave engulfed Europe. Lay-ups and idle ships are restricted to the short-sea, ferry, and passenger and cruise-ship sector (see page 38). Even some roro capacity initially laid up in mid-2020 was reactivated in the final quarter.

The biggest (and most surprising) winner is the container sector. The pandemic taught container lines how to be profitable via a constellation of circumstances that will never arise again. Despite initial forecasts of a 10 percent contraction, container trade volumes posted a year-on-year fall of just 1 percent in 2020. Volumes reached 168.4 million 20-ft equivalent units, or TEUs, figures from Container Trades Statistics show. Yet container freight costs quadrupled to fresh records on key routes to north America from Asia in the final half of 2020.

Trade imbalances initiated when China first locked down in February 2020 cascaded throughout the global logistics chain over the next 12 months. Pent up consumer demand in the West, combined with hundreds of cancelled sailings months earlier in the East after factories temporarily shut down, left vessels and empty containers out of place. That was followed by severe congestion as ports, especially on the US West Coast, struggle to discharge containerships, exacerbating the trade imbalance. However, by March this year the container sector was booming. Second-hand boxship values had increased, timecharters for some vessel types reached the most in 11 years and major container lines reported record profits exceeding billions of dollars last year. Orders for new boxships are now rolling in – as shipping reverts to its usual trick of turning a boom into a bust.

Headwinds for global tanker fleet

It’s a different, more volatile story for the estimated 2,800 largest tankers (panamax-sized and above) that transport around 3.1 billion tonnes of crude and refined products every year. By January it cost $9,000 to ship a 40-ft container to the US West Coast from China but $2 to transport a barrel of crude oil from the US Gulf to Asia. That’s because a pre-pandemic oil price war quickly gave way to significant cutbacks in export cargoes to arrest falling oil prices. Crude demand contracted by an average of 9 percent last year. Some 900 fewer tankers loaded in the Middle East Gulf last year, Lloyd’s List Intelligence data shows.

For most of 2021, freight rates on key tanker routes have been loss-making and well below operating expenses. Freight costs equate to loss-making time charter earnings leaving owners effectively subsidising oil companies to ship their cargoes. Any recovery in very weak tanker rates hinges on vaccine rollouts to end lockdowns and restore train, car and air travel that increases diesel, gasoline and jet fuel consumption. Even so, the pandemic is hastening the transition away from fossil fuels that are shipped on crude and product tankers. Gasoline, diesel and gasoil demand likely peaked over 2019 in North America and Europe, according to the International Energy Agency’s five-year report published in March. Trade growth is now firmly tilted to the east.

China does dry-bulk heavy lifting

One in five of the world’s crude cargoes sails to China, yet the country imports three-quarters of the world’s 1.5 billion tonnes of iron ore shipped by sea annually. So, when the Chinese economy recovered faster than expected, iron ore shipments quickly rebounded from May as global restocking in steel boosted production.

In 2020, seaborne iron ore exports rose 3 percent year-on-year, offset by an 8 percent contraction in global coal exports. By February 2021, time charter rates for smaller panamax, supramax and handysize ships that equate to about 60 percent of the global bulk carrier fleet (by tonnage) were at an 11-year high.

The boxship boom also shifted bulk commodities that would normally be shipped in containers to cheaper handysize vessels, lifting demand for smaller ships. Increased grain exports from the US, alongside a revival in coal and nickel ore imports to China from Pacific basin countries buoyed the larger Panamax sector. This was in stark contrast to the global financial crisis of 2008 and 2009 when record numbers of new bulk carriers were delivered into the contracting market, adding to oversupply, leading to lay-ups and idling.

While world seaborne trade is forecast to expand this year, a return to business as normal is not. The next challenge is to vaccinate seafarers to circumvent new quarantine rules in some countries, in order to keep ships sailing and trade moving.

Carry on cruising