Transmission vs Transportation

By Thomas Timlen

BREAKBULK MAGAZINE ISSUE 3 / 2020 – REGIONAL REVIEW – On the same day that stakeholders were invited to share their views for this article, Wood Mackenzie reported that road traffic volume in China had increased for the first time since late January as quarantine restrictions were eased. With all the bad news we face these days, even that modest sign of improvement was welcome.

In an effort to hinder the spread of Covid-19, at the start of 2020 China introduced internal restrictions on cargo movements that eventually impacted global imports and exports. China’s temporary transport and manufacturing shutdown slowed and stopped many shipments, but at the start of April some restrictions affecting logistics were eased.

Similar patterns have been seen throughout the Asia region, as countries attempted to limit the spread of Covid-19. Malaysia allowed the domestic road transport of foodstuffs, including exports to Singapore, while banning road transport of construction materials and putting a halt on construction projects. In some parts of Asia, breakbulk and project cargo movements that were affected are now gradually beginning to move towards their destinations. But will future demand meet previous expectations anytime soon?


‘Projects still Go On’

Leo Liu, Protranser International Logistics Co’s marketing manager based in Shanghai, is close to the eye of this storm. Liu sees the air and sea freight markets facing similar challenges as a result of the pandemic, observing that despite the present dire straits, “projects still go on.”

He has seen continued demand for the transport of equipment such as transformers and other project cargo on flat racks, and Protranser has continued managing such movements. Liu noted, however, that as “more and more countries start to shut down these days, such as Canada and South Africa,” there will surely be a short-term impact on some shipments.

Turning his attention to the market’s prospects for the next half-year, Liu acknowledged that making predictions is difficult. “To tell the truth, it is hard to say. The world is a small village, export and import links countries together. If there is a consignment that needs to be transported from country A to country B, both countries need to be workable.”

Liu feels that the timing of a return to normalcy depends on the ultimate number of countries impacted, from Asia to Europe and America. “Some say that it will take at least six months before the crisis has passed,” three months for the crisis to peak, then another three months to recover, although he also acknowledged that some have predicted that one year will pass before the world returns to a state of normalcy.

Kyriacos Panayides, managing director at AAL Shipping, headquartered in Singapore, echoed Liu’s view on the challenge of predicting the sector’s recovery. “Unfortunately, the exact timeline of recovery is unknown,” Panayides said, adding that “unsupported businesses face the real risk of serious repercussions and possible collapse, which was being witnessed even before this crisis.”

Panayides noted that as the situation stood at the start of April, there was very little appetite for investment or project greenlighting. Within the carrier sector too, there is no appetite for immediate fleet expansion or vessel charters while distressed ships sit idle worldwide.

“As forecasted, production and international cargo movements have declined rapidly since the outbreak,” he said. “Initially, the slowdown of imports and exports took hold in China, then Korea and Japan. Each case resulted in the forced reduction of shipments, delayed project cargo readiness and, in many cases, cargo bookings cancellations.

“Now the virus has hit the rest of Asia, Middle East, Europe and the U.S., the same pattern of decline is happening worldwide. Cargo freight rates have also seen extreme pressure downwards, with carriers facing fleet deployment at totally unsustainable levels.”


Mix of Impact

Wallenius Wilhelmsen Ocean’s, or WW Ocean’s, operations are truly global with a prominent presence in Asia. Vedran Muratbegovic, senior manager of business development, explained that different parts of the region, as well as the world, were being impacted at a varied pace. “While the situation in China and some other parts of Asia, such as Korea, started to show positive signs and visible improvements in March, it is really the deteriorating situation across other parts of the world, particularly in Europe and the U.S., which is now the cause for concern.

“Just what exactly the impact on the project cargo industry will be, how long will it last, and when exactly it will manifest remains anyone’s guess for the moment, as is the matter of how long it will take to tame the global outbreak,” he continued. “This is a unique event in modern history, making it difficult to compare with and draw conclusions based upon events of the past, such as SARS, 9/11 or the global financial crises.”

Muratbegovic felt that if the outbreak could be contained quickly, and governments begin to ease the enforced restrictions that at the time of writing were in place in almost every country, “we can expect to see major improvements, and an increase in business confidence.” In such a scenario he expected delays and/or periodic halts rather than complete cancellation of projects. “Obviously, a prolonged outbreak could have significantly negative effects on industry with a long road to recovery.”

With planning of industrial projects generally a long-term process, project cargo shipments are planned years in advance. As such, the impact of the pandemic on the immediate to short term will not be as drastic as it may be on the longer term, Muratbegovic pointed out. “Project cargoes are still moving, although at a slower pace, and for the moment we at worst see delays and/or periodic halts of major industrial projects. The reason for this is also that complex financing structures make it easier to delay/halt a project rather than completely cancel it.”

Nonetheless, he had concerns regarding the longer-term prospects. “We are, however, afraid that there might be a slowdown in new project announcements, or significant progress of projects planned for the coming years, and from that point of view, possibly the effects of Covid-19 on the project cargo/breakbulk sector will be seen more next year and in 2022 rather than right now.

“It is the new project pipeline that may well take a hit. It should be noted that governmental support packages could have a mitigating effect on a potential hit, but the total outcome is impossible to predict at this stage.”


Keep Serving the Trade

Predictions aside, businesses are feeling the impact in real time. Liu tells Breakbulk that as a freight forwarder, Protranser has managed to “keep working” for its clients, ensuring that staff continue to supervise packing processes at factories in Sichuan province for export from Shanghai, including supervision of transformer loadings on flat racks. As almost all of Protranser’s staff can work via email and remotely on the company’s IT system, telecommuting has not posed any problems. “In January and February, everything seemed to stop,” he said. “Starting from the end of February, factories started to work, with full staff back to work, and at this time all Protranser staff returned to work in the office. So everything is getting back on track step by step.”

WW Ocean, has, in line with other ocean carriers, seen fluctuations in volumes, meaning it has had to adjust capacities in order to maintain balanced supply and demand. Stefan Kjellström, the company’s vice president for breakbulk, said that in some ports, the carrier has experienced delays driven by a mix of limited operations as a result of less labor availability, as well as increasing inventories of non-critical cargoes in port, limiting operations. In response, WW Ocean is watching global developments closely as the pandemic continues, implementing contingencies to cover a number of scenarios. “Because of the difficulty to predict the outcome of the pandemic, and the situation being so fluid, there will undoubtedly be more impact on the transportation industry and global supply chains as a whole,” Kjellström predicts.


No Cancellations … Yet

For the time being consignments are moving, but with some consequences.

“We have not seen cancellations of shipments that had long been in the pipeline, and have recently taken sizeable power and energy project shipments from Europe to Australia,” Muratbegovic said. “Similarly, regular shipments in the renewable energy sector, as well as from other sectors, from Asia to the U.S. have continued to flow, supporting the view that drastic loss of volume isn’t likely immediately.”

However, he also pointed out that a problem that is starting to appear with some customers is requests to delay shipments and for longer transit times for shipments from Asia, as receivers in Europe and the U.S. struggle to maintain control of their own supply chains given the developing Covid-19 situation in those regions combined with the inherent capacity constraints faced by some.

“It is something that we have only recently started seeing, so it remains to be seen how long this lasts, and whether it escalates from here or whether it is just a temporary measure to help deal with bottlenecks caused by the initial disruptions to the supply chain,” Muratbegovic said.

Kjellström adds that the return to work in Asia is being hampered by lockdowns in Europe, and the U.S., meaning that some receivers are opting to delay shipments rather than place them onto vessels now, pending an outcome to the lockdown situation seen in many countries.”

In China, Liu explained that Protranser has had to manage the usual challenges that come with the breakbulk business, but so far none that have been a direct result of the pandemic.

Panayides describes a different challenge at AAL: payments. “We have faced the freezing of receivables from Chinese accounts and severe liquidity issues all around us in the market. Nevertheless, AAL’s long-term focus on ‘key accounts’ comprising majors in every industry sector, whose payment terms are set and stable, has mitigated our negative exposure. However, with the escalating pandemic surge in the European Union and the U.S., the effect is still unknown.”

Asian breakbulk operators are carefully watching the international effort to contain the virus, as containment is inextricably linked to the performance of this market.

Thomas Timlen is a Singapore-based analyst, researcher and writer with 30 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.