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COVID-19 causes biggest TEU slump in a decade

Aerial shot of an intermodal shipping yard in the Port of Long Beach, California.
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The world of ports and shipping has seen the worst downturn in TEU throughput since the financial crash of the late 2000s, according to Drewry’s quarterly container market report.

Released at the end of June 2020, Drewry’s container forecast saw a 7.3% downturn in terms of TEU for the first half of the year with throughput crashing to an almighty 16% at the peak of the COVID-19 outbreak in the second quarter 2020.

“We do not think the situation will improve as we progress through the second half of the year,” said Simon Heaney, Senior Manager, Container Research at Drewry during a webinar on 14 July.

There are some regional variations on the drop in TEU with the likes of the Middle East and Oceania not hit quite as hard. In some instances, this could be because they were coming off the back of a weaker 2019.

“We expect to see gradual normalisation and more stable freight rates. That does not mean the industry will be without challenges, still structural overcapacity and debt to deal with,” said Heaney.

For the consultancy’s baseline forecast Heaney said it is low with a world handling compound annual growth rate (CAGR) of just 3.5% over the five-year period from 2019 to 2024. However, this baseline forecast sees a return to 2019 world handling rates as soon as 2021.

This would also see a gradual supply-demand rebalance through 2024 as well as positive carrier earnings for 2020 to 2021.

At the time of the webinar Drewry predicted that operational carrier earnings will stand at £9 billion, not the $4 billion originally predicted in March 2020.

This in part due to the spike in freight rates because of reduced capacity from the carriers to deal with the dip in demand.

We think carriers overestimate the decrease in demand from North America leading to the increase in freight rates. We do not think this was malicious,” said Martin Dixon, Head of Research Products at Drewry.

Predictions have become increasingly hard to make since the outbreak of COVID-19 however Heaney said “For 2020 we are 100% certain that there will be a contraction but 2021 is still up for grabs and there is still potential for further contraction.”

Drewry has also outlined a doomsday scenario which would see a longer outbreak of COVID-19 in 2020 plus a new outbreak in 2020 which could see TEU throughput continue to decline with no recovery to 2019 levels until 2025. World handling CAGR for 2019 to 2024 would therefore stand at -4.4%.

In this scenario there would be a need for more permanent capacity suppression and an increased likelihood of industry consolidation. IF this supply contraction occurs there would be a positive trend in carrier earnings, Drewry said.

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