COVID second wave would slam ocean shipping

The OECD outlined two scenarios: “Single Hit,” in which the virus continues to recede and remains under control, and “Double Hit,” in which a second wave of infections erupts by year-end.

Both forecasts are ugly. In Single Hit, global GDP falls 6% this year and U.S. GDP drops 7.3%. In Double Hit, 2020 global GDP plunges 7.6% and U.S. GDP 8.5%, while 2021 recoveries are much slower.

Global trade fallout

“World trade is now contracting sharply,” said the OECD, which estimated a decline of 3.75% in the first quarter and said that “an even larger global output decline [is expected] in the second quarter.”

The full-year hit to global real trade growth is expected to be significantly more severe than the hit to GDP: -9.5% under Single Hit, -11.4% under Double Hit. The Double Hit scenario posits a dramatically slower trade recovery in 2021, with growth of 2.5% compared to 6% under Single Hit.

Threat to supply chains

The more systemic threat to trade — particularly for container shipping — is that the pandemic could convince companies to bring sourcing back home. “The crisis has demonstrated the vulnerability of domestic production to sourcing inputs from distant locations through complex global value chains (GVCs),” said the OECD.

“The latest data shows that foreign value added in production exceeded 50% in most economies and areas,” it continued.

The risk is that GVCs will “be shortened to reduce input sourcing risk and enhance resilience,” said the OECD. It noted that this threat “comes on top of other threats to international trade” from rising tariffs. 

The U.S.-China trade dispute could be worsened by COVID-19. “The fulfillment of the U.S.-China Phase One trade deal may be undermined by weaker demand due to the pandemic,” said the OECD.

As Boone summed up the trade threat: “Economies are diverging. The pandemic has accelerated the shift from ‘great integration to ‘great fragmentation.’”