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China Coronavirus Causes 83 Percent Plunge in Maritime Shipping Rates

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News Analysis

The Baltic Dry Index that represents the average price to ship an ocean-going container has plunged since early September by over 83 percent to a price of $411 on Feb. 11.

The Baltic Dry Index, a bellwether for the maritime shipping industry which tracks freight rates for the worlds largest cargo ships, hit a nine year high of 2,518 points on Sept. 4, 2019 as optimism swelled that the United States and China would settle their trade war and international trade would continue expanding. But the combination of a delayed trade truce and the coronavirus outbreak is on the verge of devastating globalized supply chains.

The largest maritime container ships are made of as much steel as eight Eiffel Towers and have the capacity to carry up to 23,756 20-foot containers (TEU). About one-third of all global container traffic flows through ports along Chinas 9,010-mile long coastline.

The China Ministry of Transport reported in August 2019 that despite the Sino-U.S. trade war, the containerized traffic volume at its 49 main seaports through the month of July was 132.7 million TEUs, up 4.5 percent, compared to the first seven months of 2018. At the time, container shipping customers were bidding prices up over fears that a trade deal settlement would spike demand and set off a bidding war for container access.

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But the coronavirus outbreak has tanked the entire commercial maritime industry as China has drastically curtailed industrial production, resulting in shriveling commodity demand and curtailment of oil refinery runs.

According to Evercore ISI transportation analyst Jon Chappell, “The impact on physical trade flows and, potentially more importantly, the uncertainty of this virus is resulting in unprecedented measures and precipitous declines in rates across all shipping segments.” He added, “China is the incremental buyer of nearly every major commodity, with outsized impacts on the iron ore and, increasingly, the crude oil and LNG markets.”

American Shipper reported that the estimated rental rate for very large crude carriers (VLCC)—capable of transporting 2 million barrels of crude oil—were offered at $21,900, down 78 percent in the last month. Only eight of VLCC tankers were loaded at Middle East Gulf ports last week, compared to the usual 30 per week for this time of year.

Organization of Petroleum Exporting Countries (OPEC) annouRead More – Source