Covid-19 Threatens Global Trade, Hits Shipping Industry Hard
Since the outbreak of Coronavirus (nCovid-19) in China, trade especially shipping which has been the most affected sector around the world as the international shipping industry is responsible for the carriage of around 90 per cent of the world’s trade.
Shipping is the life blood of the global economy and without it, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would simply not be possible but, since coronavirus has started, it has disrupted shipping which has affected global trade.
Impact On Shipments To Nigeria
In Nigeria, vessels call into the seaports have reduced significantly due to fear of the spread of the virus. Experts in the Nigerian maritime sector forecast that Nigeria would be losing about N1 billion daily to the outbreak of Convid-19 (coronavirus) as the level of imports arriving Nigerian ports is gradually dropping while port calls to China are becoming less frequent.
This was as a result of fear of contacting the disease and a slowdown in the Chinese economy have deterred cruise liners, container ships, oil tankers and bulk carriers alike from stopping at the nation’s harbours.
Commercial vessels have stopped arriving, with port calls falling by an estimated 30 per cent in February, and container throughput estimated to decline by between 20 and 30 per cent, according to Clarksons, a shipping research company.
However, with more than 50 per cent of Nigeria Import coming from China, many of Nigerian importers are now afraid to take cargoes from china, even as millions who usually travel during this period are canceling their trips.
Conversely, stakeholders described the Coronavirus as a very big blow to Nigeria economy, because most of Nigeria imports are from China, Hong Kong, and other Asian countries and presently, people are scared to take any consignment from China.
Also, the lockdown of a couple of businesses, the impact of Covid-19 has impacted negatively in world trade. Before the virus found its way to the United States, the stock market of the country had been passive in its reaction but last week had been a bloodbath with stocks capping their worst week since the financial crisis as worries over the coronavirus and its impact on the economy continue to rattle investor sentiment.
Oil Prices, Stock Markets
The Dow closed down more than 350 points. The 30-stock index was down more than 1,000 points earlier in the day. The S&P 500 slid 0.8 per cent, while the Nasdaq ended flat.
The impact on the Nigerian economy is two pronged with falling crude prices lowering government revenue from oil and imminent lockdown of some businesses could slow the growth that the country had recorded. Oil price as at Friday night was hovering below $50 per barrel having lost around $10 within a fide day period.
Oil constitutes a large percentage of the Nigerian government revenue and Chief Economist at PwC Nigeria Andrew Nevin had earlier last week warned of the impact of the falling oil price on the revenue and budget implementation of the government.
According to analyst at FXTM, Lukman Otunuga, inspite of the impressive growth recorded by the country in the last quarter, risks to the economy have multiplied. He noted that like many other economies at the time of writing, Nigeria is vulnerable to the spread of the COVID-19 virus in economic and health terms because one of its main trading partners is the epidemic’s epicenter China.
With China is one of Nigeria’s biggest trading partners with total trade flows in Q3 2019 worth over $3.2 billion, Otunuga noted that it is important for the economy for the virus outbreak to be brought under control because if trade flows decline on the back of slowing growth in China, the impacts are likely to be felt in Nigeria.
“While it is too early to tell the precise extent of the slowdown, the impact on the supply chain and trading with China’s trading partners is already evident. Nigeria’s crude oil exports to China fell in February amid weaker oil prices as the outlook for global oil demand weakens.
“Nigeria’s Q1 GDP remains exposed to external uncertainties in the form of weaker oil prices, the coronavirus COVID-10 outbreak, slowing growth in China and the global economy. Since the onset of the virus outbreak early in the year, Oil prices have slipped over 15 percent amid demand-side concerns, the USD has appreciated against G10 and emerging market currencies against a background of risk aversion and Gold has jumped to fresh seven-year highs.
“If it continues to spread, the virus outbreak and subsequent slump in demand from China present major risks to the Nigerian economy. Crude oil revenues account for less than 10 percent of GDP but remain the biggest source of foreign exchange for the nation, 90 percent of export sales over 50 percent of government revenues.
“Falling Oil prices would reduce foreign exchange reserves and ultimately complicate the CBN’s efforts to defend the Naira, meaning potentially heightened pressures on inflation and consumption with an eventual impact on growth. Lower Oil prices also impact the 2020 budget which was based on 2.18 million bpd at an Oil price benchmark of $57 per barrel.
“Moreover, the situation may prompt a greater focus on monetary and fiscal policy to shield the economy from external risks. The CBN meet in March but the economy remains under inflationary pressure so it is unlikely we’ll see an interest rate cut. Instead, the central bank may implement more unconventional tools to stimulate the economy.
Calls For Diversification Intensify
“It is even clearer that diversification is the key to reducing Nigeria’s reliance on Oil revenues and reducing the risks to growth. On the upside, there is still a possibility that the virus outbreak will be brought under control, meaning a return to full power for China and Asia and a relief to health authorities and policy makers in Nigeria and other countries.
Covid -19 In Nigeria
However, following the recent confirmation that the coronavirus disease has reached Lagos State in Nigeria, the Federal Airports Authority of Nigeria (FAAN) and Port Health Services have intensified screening exercise on both incoming and outgoing air passengers at the Murtala Muhammed International Airport (MMIA) and other airports across the country.
On Thursday, an Italian businessman who works in Abeokuta, Ogun State was confirmed to have been infected with Coronavirus. The Italian identified to be the first carrier in the country has been confined to an isolation facility at Mainland Hospital, Yaba, Lagos where he is responding to treatment. The patient is said not to have shown acute symptoms of the virus yet.
Consequently, it was gathered that there is imminent hike in the price of protective equipment, such as face masks, arising from panic and fears of contacting the disease by the society. Further checks show that some traders in Nigeria as at yesterday, have started to tinker with the cost owwf such masks.
A trader who sells face masks in Yaba area of Lagos, Chinedu Kambiri confirmed a slight increase in price of the masks. According to him “Yes many people are looking for it now; there are fears everywhere”. Kambiri added that, before now, it is only those who work in dirty environments wear, pointing out, that the situation has changed now as many Nigerians have started wearing it in public places.
Another trader of the protective material also in Yaba, John Udeh, stated that, the price has not gone up but that there signs it will go up in no distant time because of the rising demand. “The price has not gone up in my shop but the truth is that when many people start coming for it, it will surely go up. You know that when demand goes, up price follows,” Udeh said.
Efforts Of Aviation Agencies
But to further stop the spread of the virus, FAAN had already started making frantic efforts to get details on the index patient. The action of the aviation agency is geared toward ascertaining how the Italian underwent screening procedures at the airport.
Regional manager, Murtala Mohammed International Airport, Lagos, Mrs Victoria Shin-Aba told WEEKEND LEADERSHIP that screening had been strengthened to detect any suspicion of the Corona Virus infection.
According to Shin-Aba, all screening facilities, thermal body and infrared scanners had since been deployed since the outbreak of the covid19 for the screening of both inbound and outbound passengers. Mrs. Shinaba also noted that FAAN was working with the relevant Port Health Unit personnel and other stakeholders nationwide on the containment measures.
Also commenting, General Manager, Public Affairs, FAAN, Mrs. Henrietta Yakubu said the authority was on top of the situation as it had escalated containment measures at airports nationwide, adding that all concerned stakeholders; health officers, airlines and other secondary partners were all on red alert on the new development.
She urged air travellers and the general public to acquaint themselves with the Ministry of Aviation, health updates on prevention, and information posted at strategic areas at the airport as well their jingle on the virus for prevention purposes.
FAAN also appealed to those residing around the Lagos airport not to entertain any fear over the recent mock exercise it just carried out at the Murtala Mohammed International Airport, MMIA, Lagos.
Mrs. Yakubu, said the emergency simulation exercise is an operational requirement of the International Civil Aviation Organization (ICAO) for aerodromes which is aimed at ascertaining the level of preparedness of the airport in real-life emergency situations.
She urged all airlines and the general public to always collaborate with FAAN and other aviation agencies to give the needed assistance in ensuring the safety of lives and facilities at the airport in the event of an emergency.
Global Investors Wary
Last week, founder and CEO of deVere Group, Nigel Green one of the world’s largest independent financial services had warned that investors must take action sooner rather than later to build and safeguard their wealth.
According to him, the world is expected to undergo another global economic meltdown as deadly coronavirus and heightening geo-political and trade tensions is expected to drive the world to the brink of a global recession this year. He warned that the recession would be severe because Central Banks around the world are running out of weapons to see off the threats.
The warning comes as Asian-Pacific, European stocks and U.S. futures fell on Wednesday as the global market sell-off triggered by concerns over the impact of the coronavirus outbreak grew. Green said: “Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus.
“This, despite major multinational organisations already lowering their profit guidance, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.
“However, it does seem that this week the world is waking up to the reality of the situation as the containment of coronavirus hasn’t yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs,” he added.
Also earlier this week, Nigel Green noted in addition, coronavirus has struck at a time when major economies, including Japan, Germany, India and China’s Hong Kong are already facing a serious downturn.
He continues: “It doesn’t end there. Investors also need to consider the impact of the U.S. presidential election, the tensions between Iran and the U.S. and how oil prices will be hit if these intensify, and perhaps most significantly there’s the simmering trade war between the U.S. and China – the world’s two largest economies.
“China’s current economic slowdown will reduce the country’s ability to buy $200 billion more U.S. goods, as promised in the Phase One trade deal. And that was the ‘easy’ bit. Phase Two is more about the U.S. trying to limit China’s tech ambitions and it has been reported that Beijing is unwilling to negotiate on many of these issues, and instead would play for time.”
The deVere CEO goes on to add: “The combination of these headwinds is likely to dampen business confidence and investment, profits, and consumer demand throughout the rest of this year. Together they could push the world to the brink of a global recession this year. This would be severe because central banks are running out of weapons to see off the threats.”
Green concludes: “Whilst I am confident that we’ll narrowly avoid a global recession in 2020, no-one can accurately predict the future – as we have seen with coronavirus, which markets wrongly assumed would be limited to mainly China. Therefore, in the current volatile environment, investors – including myself – will be revising their portfolios and drip-feeding new money into the market to take advantage of the opportunities whilst reducing risk at the same time.”
Global Shipping Feels the Brunt
However, the receding world trade has been traced to the shipping industry which has been badly hit by the (Coronavirus) Convid-19 spread. From shipping companies to seafarers and dockworkers, everyone has entertained fear as the cure for the virus has remained inevitable.
For instance, the global shipping industry is faced with $1.7 billion revenue loss to coronavirus because the industry is being faced with a downfall of some 1.7 million TEU. Maerk line, a Danish shipping company is expected to face the biggest impact since China represents 30 percent of its annual shipping volume. Hapag Lloyd can also face a weak first quarter because China operations account for 25 percent of the group’s total revenue.
The impact of the coronavirus outbreak on the shipping industry “is continuing to increase in scope, and the ripple effects are continuing to show up,” said Sea-Intelligence, an analysis company specialised in the sector, in its weekly report. The observation comes at a time when industries and commerce are starting to slowly get back to work across China.
According to the document sighted by LEADERSHIP, in the 10-week-period, comprising of the Chinese New Year and the ongoing coronavirus outbreak, the industry is being faced with a downfall of some 1.7 million TEU (twenty-foot equivalent unit is the inexact unit of a container), roughly $1.7 billion in revenues for the carriers.
For the Copenhagen-based company, this TEU loss represents one percent of the total global volume in 2019, meaning that the “coronavirus is thus far on track to reduce global container growth in 2020 by one percentage point.”
“The hope is that the situation will be brought under control in the near future and that we will get a V-shaped recovery,” the report said, noting that it is possible for the shipping companies to catch up on some of the 1.7 million TEU.
But even in this case, because many containers were exported out of China and there were so many blank sailings, it “will be a challenge for carriers to repatriate them quickly enough to meet a sudden post-virus surge out of China.”
Andy Lane, an analyst at Sea-Intelligence, said, “Without a large escalation of new infections, and as people get back to work, there should be noticeable improvements within a few weeks.”
According to ship-technology.com, the number of port calls at Shanghai and Yangshang declined by 17 percent in January, compared to the same period in the previous year. Previously reported congestion in Chinese ports is also affecting other ports, since companies had to unload refrigerator (reefer) containers in other locations, increasing reefer plug utilisation there, the report revealed.
The document said that Indian importers can’t get the proper documents from the Chinese counterparts, so “the cargo is stuck at Indian ports, creating congestion problems,” which means congestion is affecting several other ports in Asia.
To avoid factory shutdowns due to lack of components, some auto plants, like Jaguar Land Rover, opted to use air cargo trips. Since the Chinese New Year is the biggest holiday in China’s calendar, shipping and logistics companies already expected a higher number of blank sailings (cancellations by the carrier), but those estimates were elevated due to the epidemic.
The largest capacity reduction was registered in Asia to North Europe lane, where 11 percent of the capacity was blanked since the Chinese New Year. When considering the holiday’s blanks, 29.5 percent of the capacity was removed from the trade, in over 10 weeks.
In the Transpacific trade to the North American West Coast, 10 percent of the sailings were blanked due to the virus, bringing the total level of blanked capacity to 24.1 percent. In the 10-week-period, during which the coronavirus has affected every sector in the industrial chain, the Transpacific trade to the West Coast now “equals 74 percent of the normal Chinese New Year removal.” In the Asia-Mediterranean lane, the impact is 71 percent.