The Maritime Industry Facing The Challenge Of Covid-19

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The challenge of the pandemic has to be measured by its impact on the maritime industry.

We are facing human contamination, which by means of person-to-person contagion acts transversally on all maritime activity. It is not a risk emanating from ships or merchandise or fuel. The spread of the virus affects all navigation and port operations in which the role of the human element is essential. Talking about the impact would not be idle, but it is already being widely commented in the media. However, the impact determines the challenges that are largely economic in nature and that can be synthesized in a notable decrease in world maritime activity and a drop in port operations almost equivalent to its stoppage in some countries.

Due to the maritime traffic of people that the cruise industry involves, the outbreaks of the virus on board have suffered a great impact with paralysis and rejection of ships and tourist programs derived from that traffic. Examples such as the DIAMOND PRINCESS ”(in Yokohama), MS WESTERDAM, MSC MERAVIGLIA (in Jamaica, Cayman Islands and Mexico), AZAMARA QUEST and SUN PRINCESS (Reunion Island), the GRAND PRINCESS (Dubai) and ZANDAAM, with their transfer of infected passengers to ROTTERDAM before passing the Panama Canal. A chaotic situation of port closures and tourist stops in the Caribbean and the Mediterranean. The suspension of travel has seriously affected the major operators Norwegian Cruise Lines, Caribbean and Carnival Cruise Lines causing reduction of routes, readjustments of crews and ground personnel, establishment of pre-shipment health checks and returns of tickets exceeding 4M pounds sterling, even counting and without definitive figures. Asian programs are on hold and all of that cruise activity has practically lost the summer and the reserves still unable to set a return date to routes that need months of programming.

In shipbuilding many cruise units under construction in China and Korea have been canceled and others are suffering delays and contractual damages (“penalty clauses”). China may go back as early as this month, but manufacturing ceases and supply chain delays for capital goods will make it very difficult. As a whole, constructions and repairs are under the umbrella of “force majeure” (exclusion of responsibility for “epidemics”) and it is the shippers who lose the most, since the shipyards are seriously affected by the contagion and loss of operating personnel .

In the maritime transport of goods, the impact operates by influencing charter contracts (cancellation of trips, port delays, deviations of route, safe ports, suspension of loading and unloading operations, etc.). There are ships with en-route cargo that are they encounter changing situations in a matter of hours, since the port may be closed, or access to the dock may not be allowed or they may be immobilized due to the quarantine of people suspected of being carriers of the virus, no authorization to disembark the crew, a requirement to health statements, etc. It is not difficult to imagine the economic damage that begins by making a ship unmanageable ( deficiency of men) if part of the contagious crew and cannot be replaced, because the port authority does not allow it; following by the continued delays that harm the charterers, being able to get frustrated with the contracts. The Covid-19 does not make a port physically unsafe, but the pandemic produces the equivalent effect without the charterer being able to predict it by naming the port, therefore, this business is being carried out with very little time margin in order to reduce losses. . For time charterers, the off-hire situations that the pandemic may generate by preventing the ship from providing the expected service constitute a daily headache since they are economic losses that the specific contract may not exclude the payment of freight. BIMCO has provided the shipping market with a clause.

The Maritime Industry Facing The Challenge Of Covid-19

The nautical management of ships should not be affected unless there is a contagion on board their own personnel, or that of others in the case of land repairers or auxiliaries, but the risks are open.

All, absolutely all, these incident problems on ship and cargo (availability in port, suspension in the supply chain, stoppage in factories at origin, etc.) will lead to a Dantesque picture of claims, precautionary measures and legal hells in the that the answer will depend on how the force majeure doctrine will be applied in each concrete case. It is conceivable the litigation congestion that awaits because the preventive force of the coronavirus may not have a direct impact, according to the proximal cause rule (English law), on the loss of a certain business, but rather constitutes a chain of causes, which the other (civilist) rule of the cause dominans sine qua non could apply; and we are going to see many different cases with wired evidence. The judicial instances are going to be stuck, making arbitration and mediation solutions seem more advisable.

With all this happening in the sequential panorama and without being able to encrypt or estimate losses in the medium term, the consequences define and the challenges.

The Maritime Industry Facing The Challenge Of Covid-19

In the financial aspect, the perspectives for the current 2020 are negative, since they can seriously affect the amortizations of naval credits and create a serious cash liquidity problem for shipping companies and operators; with such incidence that the default of a payment due to its credit date will lead to the acceleration of the complete debt not amortized under the credit. This situation of mortgage foreclosure will lead either to the refinancing of the credit, to the negotiation of waits or, where appropriate, to the immobilization and sale of some units of the fleets. A grim panorama of crisis, in which the results of the shipping companies will be severely affected throughout 2020.

Stock prices in the container transport sector have been falling since the beginning of March, as a result of the storm that is falling on the world stock market, with the general fear of a crisis similar to that of 2008-2009.

The hydrocarbon sector observes a curious upturn since, with the decrease in consumption and the price of Brent around 20 dollars and the decrease in prices, the tanker market has been favoured by an increase in demand for future and has recovered activity, also thanks to a huge product storage that has forced OPEC to reduce the daily pumping to 10M barrels (which hurts Russia and Saudi Arabia, although this will endure the loss of sales for two more years ). For ships carrying other types of petroleum products other than crude, rates have increased in the last month due to the aforementioned storage of production. In the LNG market, freight rates have been greatly reduced in the first quarter with the expansion of the virus,

As far as port operators are concerned, they are very attentive to viral evolution. The shares of the large terminals have registered large falls, with the exception of those of DP Ports. The Drewry port index has decreased by 22% and, in his opinion, as long as the situation continues and continues to extend to key consumption areas, the risk of a deep recession will increase, and maritime trade may recover towards the end of 2021 or 2022.

The Maritime Industry Facing The Challenge Of Covid-19

In the bulk carrier sector, freight is kept under pressure by changes in supply and the economy. Freight rates will drop in April and May as more countries adopt containment measures; although the situation in China, if there are no viral outbreaks, may improve in the next two months with an increase in steel production, as well as in the import of iron ore and coal.

In general, the challenge of the Covid-19 impact will be related to the economic recession and the fall in GDP in many countries. Although many customers will benefit from low prices in various markets, global economic activity will mark the recovery of the maritime industry. As long as the recession is not very deep and does not reach its effects by 2022.


Source: Naucher