Covid-19: The Ports’ Potential Income Drop and Its Cash Flow Strategy

By: Harijanto, Executive Director of Himpunan Masyarakat Peduli Maritim

 

Last week, prediction and projection on the impact of coronavirus outbreak (covid-19) to the global economy and trade activity had been announced. The Organisation for Economic Co-operation and Development (OECD) projected that the global economy and trade would come to the worst since 2009.

As the covid-19 has seriously hit the China economy, the global economy will completely get serious impact. We all know China is now being the centre of world’s manufacturing activities, reaching more than one-third of the global manufacturers.

OECD warned the decreasing trade volume to/from China and drop of manufacturing in China would totally disturb the global supply chain. Data from the two months of the year (2020) proved it, flow of export/import between China and other countries dropped. This will disturb the supply of raw material to the manufacturing activities in the countries around the world, the ones using raw material from China in particular.

Indicators show that the slow economy had hit all the countries in the world, including Indonesia. The spread of COVID-19 has had an impact on the global economy, especially in terms of industry, trade, investment, and tourism. Indonesia, which is part of the global supply chain, could not avoid the impacts. Data said that Indonesia export import in January-February dropped year on year.

And the sub-sectors mostly impacted include shipping. Global shipping had cancelled hundreds of ship calls (blank sailing) due to lack of cargoes. Up to the end of February, total global capacity cancelled as effect of the covid-19 had reached more than 2 million TEUs, according to some world’s shipping analysis institutions.

It will, of course, affect the drop in port’s volume. All ports in USA for example, experienced a volume drop in the first two months. Port of Los Angeles suffered a 23% volume decrease in February, according to the port authority.

No doubt, the drop in volume will significantly decrease the operators’ income. Assuming that the freight rate/TEU is $1,000, the global shipping industry have lost more than $2 billion just in two months. Manufacturing must suffer further. How about the port? Though it has not been accounted yet, but, surely, the covid-19 would significantly decrease the port income.

Some Indonesia’s leading port in export import, including Tanjung Priok Jakarta, Tanjung Perak Surabaya, Belawan Medan, and Makassar port, will automatically face an income drop.

In facing such situation, what the operators, the port operators in particular, should do to maintain its cash flow balance? What the port operators, especially the state port operators of PT Pelindo I-IV should do to make them still create profit in this tough year? They have to cut cost of items not directly relating to operational activities. Let say the cost for consultation, official trip, meetings, entertains, comparative studies, etc.

This is crucial since the effect of this covid-19 will stay longer. The export/import drop is predictably continued up to Q2 (second quarter) this year. Experiences from similar cases of MERS tell it. The covid-19 is predicted to create massive and longer impact not only to China economy but also to global economy.

This will potentially affect to the slow growth and lower performed of Indonesia’s port. So, it needs a very appropriate strategy to keep growth, including by cutting cost of non-operational items.

 

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