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More cargo chaos looms as carriers slash ocean services

MSC is among the carriers cutting services. Photo credit: Flickr/Kees Torn

Coronavirus fallout for container shipping is now in full swing.

Social distancing and quarantines are causing cargo buyers to cancel bookings in Europe and the U.S., which is in turn prompting container lines to “blank” (cancel) scheduled sailings, starting with those from Asia to Europe.

According to Alan Murphy, CEO and founder of Copenhagen-based Sea-Intelligence, “Within the past week, the number of blank sailings announced following the pandemic spread increased from two to 45 on main deep-sea trades.”

He believes the effect of the pandemic on buyers in Europe and the U.S. will have even greater consequences for container-shipping schedules than the lockdown of Wuhan, China, in February.

“The effect of the virus outbreak in China was the cancellation of more than 100 sailings [and] we expect the pandemic spread to have an even more substantial impact,” he warned.

New service cancellations

The 2M Alliance between Maersk Line and Mediterranean Shipping Co. (MSC) was “especially active” in cancellations over the past week; 2M fully withdrew its AE2/Swan and AE20/Dragon Asia-Europe services for the second quarter — a 21% reduction of its capacity on this lane.

Chart credit: Sea-Intelligence Sunday Spotlight Issue 456

“Given the short notice as well as the extended duration, this can only be seen as a reflection of a similar sharp decline in both active and expected booking activity from customers,” he said, predicting that the week ahead will see “a further escalation in the amount of blank sailings both by other carriers as well as in other trade lanes.”

Next in line is the trans-Atlantic market, for Asian sailings to both the U.S. West Coast and the U.S. East Coast via the Panama Canal. During an interview with FreightWaves last week, Flexport Global Head of Ocean Freight Nerijus Poskus reported an unprecedented spike in booking cancellations by U.S. cargo buyers, which he predicted would result in blank sailings to the U.S. in April.

In fact, the predicted trans-Pacific blank sailings have now begun.

On Monday, Lars Jensen, CEO of Copenhagen-based SeaIntelligence Consulting (a different company than Sea-Intelligence) pointed to four blank sailings that carrier OOCL had just announced on its China-U.S. West Coast service.

Increased uncertainty for shippers

Coronavirus-driven booking cancellations by shippers create a vicious circle that generates even more uncertainty on delivery schedules of non-cancelled cargoes.

“When carriers see such a sharp drop in booking activity, they have no choice but to cancel sailings,” Murphy explained. “Canceled sailings lead to a need to rearrange supply chains, but given the high uncertainty in world markets, no one knows exactly how long this will last. Hence, new arrangements will all be ad hoc.”

Jensen also highlighted the higher degree of uncertainty for cargo shippers. Because lead times for the latest service cancellations are “substantially shorter than usual,” he said that “shippers will need to be agile in rearranging their supply chains in the coming weeks.”

Just the beginning?

As bad as the situation looks, this could be just the beginning, according to Stifel analyst Ben Nolan.

Speaking on Monday during the Capital Link International Forum (which is being held virtually), Nolan said, “We could be in the early stages of a global recession or a global depression, where demand [in the coming period] is going to be lower. You’re starting to see that in terms of underlying container volumes and the blank sailings.

“I’m concerned on the container side that we could end up with another structural problem with one of the big players — a black-swan kind of risk,” Nolan said. “I’m not saying it’s going to happen, but I do think we’re in unprecedented times and working under the assumption that we’re automatically going to bounce right back and everybody’s going to be happy and healthy is probably a little bit naïve.” Click for more FreightWaves/American Shipper articles by Greg Miller  

Greg Miller

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shih Tzus.