- April 13, 2020
- Posted by: lynxgi
- Category: Big Data, Mapping, and Technology, China, Corruption, Foreign Policy, Global Business
Lynx Fellow John Milton
Covid-19’s effect on economics has been a constant component of news and media for months. While mainstream media tends to focus on the strain suffered by small businesses and on workers, a significant component of global supply chains has been repeatedly absent. Most manufactured goods we encounter and the fuel we use in our cars has likely been transported across the Pacific or Atlantic Oceans in container ships or tankers. As around 53% of US imports are transported by vessel, it is fair to say that both the domestic and international economy depend on the shipping industry. This critical industry is under threat due to the Covid-19 pandemic, and with limited resources to recover, it carries the greatest risk facing economic recovery.
Container volume for 2020 is expected to fall by 10%, on par with the amount contributed to the 2008 financial crisis. A large number of “blank sailing” is also expected. Blank sailing is “ a sailing that has been canceled by the carrier. A blank sailing could mean a vessel is skipping one port, or that the entire string is canceled.” Over 120 blank sailings from Chinese ports have already been contributed to the virus as of April, 2 with many more expected.
The staggering risk the shipping industry faces is compounded with the potential lack of support they could receive by the federal government. US based airline industries will likely be bailed out for the losses they experience during the pandemic. This will ensure fast-shipping of a limited amount of urgently needed stupples. However, as many international shipping companies and vessels are registered to a variety of nations, they may not receive the same federal assistance. While the port of origin of many vessels will be beneficial as the tax cuts they receive will protect against a loss of revenue, the preservation of the international shipping industry is vital as the vast majority of global supply and demand depend intensively on shipping.
The efforts of quarantining the virus has led to a decrease in the amount of container ships in operation. Fewer ships in operation will directly affect both supply and demand as lack of access to markets will cause artificial shortages. While goods like medical equipment and other desperately needed necessities are being produced as fast as possible, a reduced amount of active vessels will not be able to bring the demanded quantity to market. Additionally, if masks, gloves and sanitizers are being produced at full capacity, but there are not enough ships to transport the goods, inadequate supply will increase the price and further decrease demand. A further reduction in demand will expand the amount of blank sailing, the consequences for which are grim for combating the virus. If the ships carrying these goods are not able to operate at full capacity, the effects of Covid-19 could be significantly prolonged, escalating the impact on the global economy and increasing the global death rate
There is good news; not all shipping volume has decreased. Tanker shipping of crude oil has remained stable. This is likely due to the nations stocking up on energy to ensure emergency vehicles and facilities have plenty of fuel for the foreseeable future. Additionally, Chinese workers and factories have begun to go back to work as the pandemic has begun to stabilize in the epicenter. Over 95% of firms in Hubei province have resumed work as of March 30. While there are reports that these numbers have been fabricated, Chinese workers are returning to work due to global demand for their manufactured goods. While container cargo may take some to fully recover, there is evidence that the first acts of going back to normal have begun.