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Interview: Impact of the Corona Crisis on Shipping Industry

How strong are the effects on the shipping industry? Which markets are particularly affected, what are the biggest challenges and what needs to be done in the long run? We spoke to our shipping expert and head of the MSc Business Development programme, Professor Dr. Max Johns, about this.

Does the shipping industry feel the current Corona-crisis?   

Yes, of course the current crisis has a huge impact on the industry. But the picture is actually quite different depending on the type of ship and segment. The cruise industry has been particularly affected, having had to shut down operations completely, virtually overnight. Hundreds of cruise ships are being laid up and are looking for harbours to await the end of the crisis. The ferries that normally carry passengers and holidaymakers have been hit just as hard. We are seeing this on the North Sea islands as well as in the Baltic Sea region.  

How are things in container shipping?  

The German shipowners are market leaders in container shipping and Hapag-Lloyd, one of the major container lines, is based in Hamburg. At present, considerably fewer containers are being transported, around 20% according to estimates. That affects the volume of the lines. But in a few weeks' time it will hit the so-called tramp shipping companies even harder. They lease the ships to the lines. 

Isn’t it normal that there is some volatility in demand for ships?  

Volatility is normal - but by no means to this extent. You cannot prepare for an event like the current crisis. It hits medium-sized shipping companies especially hard because it has taken practically a decade to recover even slightly from the consequences of the financial crisis of 2008. In addition, we are now dealing with two serious effects that are unusual: first, production in China has almost come to a standstill, and now demand in the West for goods that are typically transported in containers is collapsing. And, temporary employment with reduced hours (the so-called “Zeitarbeit”) and,  especially in the US, massive unemployment, will only allow for a slow increase in future purchasing power.  

Are things going badly in all shipping markets?  

No. The large oil tankers are currently experiencing an equally historically exceptional situation, but this is only partly due to Corona: Tankers are in greater demand than ever before because they can be used as storage utilities. The market is still being flooded with too much oil and, well, it must go somewhere. The warehouses on land are quickly filled. That is why producers and traders are currently paying extremely high prices to store oil on ships.  

So is this a ray of hope for German shipping?  

On the contrary: there are very few tankers in the German merchant fleet. Instead, shipowners operate an above-average number of so-called multipurpose ships. They are often used to bring heavy parts to large construction sites such as those in the oil and gas industry. Practically all major projects are now on hold for the time being. This means that there is hardly any employment left for these ships. And that means, in turn, that the low oil price is very damaging here, too.  

What can the shipping industry do to boost demand? 

Cargo ships have a derived demand. This means that you cannot stimulate demand yourself. Only when consumers start buying goods again and industrial production restarts, more good will be transported. Only the ferries and cruise operators can stimulate demand themselves.  

What is the biggest challenge the shipping industry is facing at the moment?  

Seafarers out on the ships face the biggest challenge. They simply cannot return home at this moment in time. The travel restrictions are hitting them hard. The replacements cannot replace the current workers and the workers on board don’t really have anywhere to go. Imagine that you are locked up in your office and suddenly cannot go back to your family for two months. The seamen are doing an admirable job. Without them, we would have run out of goods in the shops a long time ago.  

What's the future holding? 

The prospects for the next 18 months are difficult. According to the latest forecasts, GDP worldwide will show a clearly negative trend, at least for 2020. Instead of +3.3% we now expect -3%. This also means that world trade will decline. Maritime trade and container trade will shrink even more dramatically. Even if the forecasts change almost daily: the slump seems to be as severe as in 2009 after the financial crisis.  

What does that mean in concrete terms?  

Maritime trade appears to be down 5%, container trade for 2020 probably by around 10%. Pessimistic estimates even believe that 25 million fewer containers will be transported than last year, which would mean a decline of 15%. Many ships will probably have to be laid up, i.e. shut down for a few months like a disused factory.  


 
 

 

Are there also positive signals?  

Fortunately, there are not as many ships currently being built in shipyards as there were in 2008, so that hopefully a market balance can be restored more quickly than after the last crisis.  

What is the long-term outlook?  

I am particularly concerned about shifts that make global trade more difficult. Isolationism and protectionism are destroying jobs and prosperity not only here, but especially in poorer countries. It is therefore extremely important that we continue to focus on international cooperation and therefore on trade. In a political climate that is often dominated by populists, it is important that we do not forget the bigger picture. Without trade we are poorer. The entire German economy would suffer greatly. If we create poverty elsewhere in the world, we must expect social unrest. This political challenge must be addressed in the right way.  

Thank you for this interview! 

 

Professor Dr. Max Johns is the Academic Head of the MSc Business Development. Beside his teaching and research activity at HSBA, Professor Dr. Max Johns was a policy maker in the international shipping committee VDR (Verbands Deutscher Reeder). At VDR he was representing the interests of German ship owners in national and international committees. After finishing his studies in Montpellier, Leuven and Tuebingen Dr Max Johns taught at various universities. After an extensive career in the media industry he reconnected with his roots and moved into the shipping industry.

In his academic career, he primarily focused on the economic implications of ship finance in various markets and the influence of the financial crisis on the maritime industry. He publishes frequently articles in trade journals.