COVID-19 has impacted almost every global industry; shipping is no exception. Ports have limited their operations, with some closing entirely until safe to reopen. This has caused multiple order cancellations for imported cargo, as well as halted orders for newly constructed ships. Ports that have remained open at limited capacity implemented screening procedures. This has caused delays for ships arriving at these ports, consequently costing the ship owners essential business.
Shipbuilding and the Domino Effect
The shipbuilding sector has suffered the greatest impact as China, the world’s leading shipbuilding country, had to temporarily close and limit its operations as a consequence of COVID-19. Ceasing operations caused purchase orders for the construction of new ships to diminish, thereby China suffered a 51% fall in orders in the first quarter of 2020, relative to orders in the first quarter of 2019.
It has been reported that China’s state backed shipbuilders have overcome the slump induced by COVID-19, which would suggest the shipbuilding sector has recovered. However, privately owned ship constructors Cosco Shipping Heavy Industry (Dalian) and Dalian Shipbuilding Industry Offshore, shut down their operations on 28 July 2020 in China, causing further delays for buyers anticipating delivery of their ships. This shows that the shipbuilding sector has not yet overcome the effects of COVID-19.
The delays in shipbuilding have created a domino effect for the rest of the shipping industry. This is due to many ship owners arranging charters whilst their ships are under construction – a charter is the equivalent of an agreement to lease a car. On that account, delays in construction will make these charters impossible to fulfil. Thus, making it impossible for charterers (the lessee) to deliver their cargo to purchasers at the agreed upon time. Consequently, the limited operations and closures of shipyards are having a coattail effect on ship purchasers wanting to charter their new ships; and on charterers who require the new ship to transport cargo.
COVID-19 has widely been considered an unforeseeable, unavoidable and unsurmountable event by various organisations, institutions and bodies. Thus, COVID-19 classifies as a suitable reason to trigger a force majeure clause, if such a clause has been contracted for. If a force majeure is relied upon, the contracting parties will be released from their obligations. Depending on the explicit provisions of the clause, payments made prior to COVID-19 (the force majeure event) may require refunding.
A Steady Recovery
There are signs of recovery in the shipping industry. Demand in Asia for capsize cargo is increasing and Europe remains strongly committed to keeping ports open; to allow for food and essential goods to be delivered. Furthermore, the number of voyages by container ships originating from China is starting to rise. However, the global shipping industry is unlikely to see a complete recovery for the next 12 to 18 months.
Maritime UK has released a recovery plan for the UK shipping industry, outlining a three-stage strategy. The first stage is focused on a restart, which includes the phased reopening of ports. Recovery is the second stage, which is focused on building resilience through new support initiatives and the sharing of best practices. The final stage is to renew the UK shipping industry to improve its competitivity in global markets by driving environmentally friendly growth, and stimulating economic development in coastal communities. There is still a long way to go before the shipping industry returns to its pre-COVID-19 strength, but the current signs of recovery show promise and much planning is going into rebuilding the industry.