HLAG Hapag-Lloyd AG

By Costas Paris 

Oceangoing shipping companies are keeping commerce moving around the world as governments try to keep their staggering economies propped up and supplies heading to increasingly strained communities.

But many operators are going into survival mode themselves, as the coronavirus pandemic takes a toll on trade.

"Demand is caving and supply chains are in distress," said George Lazaridis, head of research at Greece-based Allied Shipbroking. "Nobody knows when restrictions will be lifted and the industry is in a battle for survival."

Moody's Investors Service sent a grim warning sign of the troubles spreading through shipping when the firm cut the ratings outlook for Denmark's A.P. Moller-Maersk A/S, the world's biggest boxship operator by capacity, from stable to negative.

Many transportation operations, including port cargo handlers and trucking companies and railroads that move goods inland, are considered essential businesses in nations that now are locking down business.

Unlike airlines, which could be set to gain billions of dollars in bailout funds, most shipping companies can't count on financial relief from governments, however. Much of the world's commercial cargo fleet operates under a variety of flags and already enjoys substantial tax benefits.

Many of the world's shipping companies are scrambling to adjust to the new world.

Bulk carriers, the operators that move coal, iron ore, wheat and other commodities, are coping with low freight rates and slipping demand. China, the world's biggest commodities importer, drastically cut down inbound cargoes of iron ore and coal in the first quarter.

A recovery in freight rates isn't expected until late into the second half and that is if the virus doesn't engulf big exporters like Brazil and Australia. The average daily freight rate for large bulkers stands at around $8,000 a day, less than half the break-even level.

The specialized car carriers that haul automobiles and other vehicles around the world are reeling as automotive factories shut down. Norway's Wallenius Wilhelmsen, one of the world's biggest car carriers, last week said it would furlough about 2,500 workers -- half of its production staff in the Americas -- and pulled 14 ships from its fleet.

Only tanker operators appear to be weathering the pandemic storm. Crude carriers are on a healthy run as oil importing countries and traders are buying big amounts of oil to replenish strategic reserves and for storage at record low prices.

Still, a recession in the global economy would sharply reduce the demand for oil in the coming months.

For container ship carriers, the operators that move most of the world's manufactured goods, the downturn is already here.

The carriers in that sector canceled about half of their services out of China in the first quarter and are continuing to "blank" sailings on major trade routes for the second quarter as they try to preserve cash.

In January "we thought some cargo would be delayed, but things would be OK as ports stayed open," said the chief executive of a European ship chartering company with a fleet of two dozen vessels. "Now, I have to let go of a quarter of my staff and I don't know whether I'll still have a business at the end of April. "

"The virus in China alone led to more than 120 blank sailings. The pandemic spread is likely to lead to substantially more blank sailings than this," said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. "If the 37% reduction is an indication of a global demand shortfall, this means all carriers are facing mortal risks."

Mr. Jensen expects overall container volumes to decline about 10% this year because of the pandemic, similar to the decline in the aftermath of the 2008 financial crisis.

While big operators hold ships in storage, smaller operators have less room to ride out the crisis.

China's supply shortage put dozens of smaller shipping companies with niche routes from China to destinations like Japan, South Korea and the Philippines in distress, erasing their cash flows.

Those companies have only a handful of ships apiece but they are critical to global trade because they shuttle containers and commodities on regional trade lanes that feed parts and finished goods to operators on the bigger routes.

Singapore-based Pacific International Lines, the world's 10th-biggest container line by capacity, according to maritime data provider Alphaliner, has been selling off some assets to raise cash. The company has been seeking to stave off creditors amid a heavy debt load.

A.P. Moller-Maersk's main Maersk Line business went into 2020 with nearly $4.8 billion in cash. But Moody's in downgrading Maersk said that won't insulate the carrier from the factory closures and protectionist actions spreading around the world.

"The shipping sector in general and container shipping sector in particular are dependent on world trade and activity demand for goods from industrial companies as well as consumers," Moody's said in its report Tuesday.

In Germany, Alfred Hartmann, the head of the country's big shipowners' association, warned that repayment of some shipping loans "will turn out to be problematic."

"Our focus going forward will be costs, further deleveraging, and [to] make sure that we keep enough cash," Rolf Habben Jansen, chief executive of Hapag-Lloyd AG, said in a March 20 investor conference call.

The German container line earned a $418 million net profit in 2019, but Mr. Jansen said that last year now seems "a very long time ago."

Write to Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

April 02, 2020 05:44 ET (09:44 GMT)

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