Freight may tumble as shipping market reels under coronavirus scare

Singapore — The coronavirus outbreak in China has forced several countries to resort to stringent quarantine checks and the measures are starting to have a knock-on effect on the global commodities shipping market.

Delays in loading and delivery of cargoes in the tanker, dry bulk and container shipping segments are being reported as ships are being forced to sit idle amid a lack of crew availability.

Brokers, owners and charterers said shipments of clean products, such as jet fuel and gasoline, will be hit hardest as fewer people travel within, into and out of China, pulling down freight.

Lars Bastian Ostereng, an Oslo-based analyst with Arctic Securities, said in a recent report damage assessments for oil demand vary from "moderate" to "catastrophic" but "we are in the moderate camp for now."

Mild weather and a limited impact from the new sulfur regulations for marine fuels, are also hitting demand, Ostereng said.

Gasoil and jet fuel are two commodities regularly moving on clean tankers from the West Coast of India, North Asia and the Middle East to Europe and Singapore. Trade in these products, along with gasoline and naphtha, is an important barometer in determining freight rates.

India has been exporting more than 7 million mt of jet fuel in each of the last three years, but exporters are now worried about a drop in inquiries.

A ship broker in South Korea said there will be less cargo moves as refineries in China and elsewhere are already planning a cut in run rates, and that is putting a greater burden on a shipping market already seeing an oversupply of vessels.

Price impact

The coronavirus scare has further deteriorated the health of a freight market already reeling from the impact of the International Maritime Organization's 0.5%S rule requiring ships to run more expensive cleaner fuels.

VLCC owners are currently earning around $19,000/day on the Persian Gulf-East Asia route, about one-fifth of the $105,000/day they were earning at the beginning of the year, according to the broker estimates. In clean tankers, the daily earnings for LR ships have slumped to $4,000-$7,000 on the benchmark Persian Gulf-Japan route from around $18,000 early last month for LR1 ships.

S&P Global Platts data shows Arab Gulf-Far East (270,000 mt) rates have fallen 66% from a year high of $29.27/mt on January 8 to $9.95/mt, while Arab Gulf-China (270,000 mt) rates are down 67% from a 2020 high of $27.96/mt on January 8 to $9.28/mt.

Rate declines were already happening before the epidemic scare, and the spread of the coronavirus will make recovery all the more difficult and increase the downside potential as ships grow even more reluctant to call on Chinese ports

Port restrictions have made crew change difficult, and the fluid situation makes crew coordination efforts futile, said Christina Cheh, vice president for Global Health, Safety, Environment and Quality at Wilhelmsen Ship Management.

"Until the best solution is found, we have extended the current crew contract within the limits of the [Maritime Labour Convention]," Cheh said.

Procedural delays

Many countries are facing shipment delays because of multiple layers of screening. Merchant ships arriving in Australia were impacted by Canberra's move to ban all personnel entering the country if they have been to China in February.

All ships that have left China in February will have to wait out the 14-day quarantine period. If a sickness is reported on the ship, Australian authorities will investigate and likely extend the quarantine for 14 more days.

Additionally, ships arriving at Australian ports are required to declare their last five ports of call. The Australian port authorities will also delay pilotage services to ships that have transited directly from China or have been at sea for less than the 14-day quarantine period.

Singapore, the world's largest bunkering port, had many resident Chinese nationals return home from the Lunar New Year holiday. Their return to work, which include crew on ships and workers at ports, shipyards and maritime technicians, is now being delayed due to health inspections and quarantine checks.

"A lot of crew are stuck as they cannot transit because nobody will accept them," a source with a clean tankers' owner told S&P Global Platts.

Such workers have job contracts with their employers and cannot be easily replaced either, the source said. Singapore has asked for all workers returning from mainland China in the last two weeks to be put on a 14-day leave of absence.