Will Shipping Industry 2020 Chaos Continue This Year?

By: Bambang Sabekti, Professional in Maritime Industry

International container throughput of Indonesia’s leading port Tanjung Priok in December last year, climbed 11% month on month. However, total this port throughput for the whole year of 2020 was down 11% year on year due to the pandemic Covid-19. The pandemic has caused chaos in the shipping industry, including global container shortage. While, on the same time the blank sailing strategy of Main Line Operator (MLO) to manage the supply in order to avoid over capacity due to lock down in many countries has also disturbed the process of distribution. It is hard for shipper to get slot/space, giving a good bargaining for MLO to raise up freight.

Central Bureau of Statistic BPS also shown similar trend. BPS recorded a largest increase in non-oil and gas exports in December 2020, compared to November, led by animal / vegetable fats and oils which was amounted to US $ 264.2 million (11.23%), while the largest decrease occurred in iron and steel amounting to US $ 77.7 million (6.06%).

As for the import performance, during December 2020 it reached US $ 14.44 billion or an increase of 14.00% compared to November 2020. Meanwhile, when compared to December 2019 it decreased 0.47%. The largest increase in non-oil and gas imports in December 2020 compared to November 2020 was in the category of machinery and mechanical equipment valued at US $ 240.0 million (12.48%), while the largest decrease was for the category of precious metals and jewelry / gems valued at US $ 146.9 million (39, 68%).

The year 2020 has been very challenging, but 2021 is not going to get better soon. In 2020, global economic growth was projected to contract by 4.9 percent with the United States suffering negative growth of 8 percent, Europe minus 10.2 percent, Japan minus 6 percent and Indonesia minus 2 percent. China is probably the only country that will record positive growth, projected at 1.2 percent.

The invention of vaccines may help one-third of the population to return to their normal activities but only at the rate of 60 to 70 percent compared to pre-pandemic. In addition, the incoming Joe Biden administration may embrace the multilateral system. But these will not necessarily solve all the problems. The world is facing one year of a serious economic downturn, and it will take at least three years for the world to recover.

COVID-19 has brought the worst economic impacts in the modern era, hitting the world from both the demand and supply sides simultaneously. As of the end of 2020, COVID-19 has infected more than 1.2 million people in Southeast Asia, with a mortality rate of 2.43 percent. Indonesia recorded a mortality rate of 3 percent – among the highest in the world.

Although Indonesia recorded a slight pickup in the third quarter of 2020 as it decreased the negative growth to 3.5 percent from minus 5.3 percent in the second quarter, this should not make us complacent for three reasons. First, nonperforming loans have been increasing, reaching the highest level since the global financial crisis. The nonperformance rate went from 2.6 percent of total loans in 2010 to 3.2 percent in September 2020. Second, Foreign Direct Investment (FDI ) has not improved. FDI totaled only US$20 billion in 2017 and 2018, and up slightly to $23 billion in 2019. Domestic investment is still struggling.

Third, it is true that Indonesia ‘s Trade Balance throughout 2020 was a surplus of US $ 21.74 billion, but the surplus was driven by a sharp decline in imports instead of an increase in exports. Imports declined by 18 percent and exports declined by 5.8 percent.

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It is good to note that the decrease in imports was largely driven by decreases in imports of machinery and raw materials, which will be translated into decreased industrial production this year and may cause a significant number of workers to be laid off. Japanese, Korean, and Taiwanese have been looking for FDI relocation and have considered Indonesia as a good alternative. However, we have not seen any success stories of these relocations so far even though our Head of BKPM has been working very hard to convince the potential investor.

Earlier reports from international institutions projected a stronger Indonesian economy in 2021. The World Bank forecasted 4.8 percent growth , IMF forecasted 6.1 percent growth, the Asian Development Bank (ADB) forecasted 4.5 percent growth, our government expected a 4.5-5.5%, and ALFI (Indonesia Logistics and Forwarders’ Association) predicted a 3% growth.

While, for logistics growth, World Bank and ALFI forecasted 9.6 % and 6%, respectively. Whilst, IMF and RI’s government forecasting 12,2% and 9,0-11% respectively for logistics growth.  We hope that vaccination program is successful, so that social mobility that can create the demand can be happened. But we’re aware that vaccination take longer time considering we have big population and social distancing, COVID-19’s protocol is still required. It becomes the constraint in opening up the overall economy activity.

Container Shortage, High Freight Rate

The container shortage took place over 4 types of containers, namely 20 ft Dry Cargo (DC), 40 ft DC, 40 ft Dry Van (DV), and 40 ft High Cube (HC). Though in general they were still available, but were limited for international trade, including at some Indonesia’s leading ports of Tanjung Priok, Tanjung Perak, Tanjung Emas, Belawan, and Panjang.

Their availability index at those major ports were low to rare, with CAX (Container Availability Index) between 0.2-0.3. This condition impacted on the increase of freight rate from those ports during the period of September – December 2020. The freight rate from those ports to Europe, US, and Asian destinations, increased by 400-600%. Freight from Indonesia to Asian Ports increased from $150-180 to 800-1050/TEU. Meanwhile, to Europe from 700-800 USD to 3400-3500 USD.

Indonesia’s export has and will be disrupted and hampered, either due to delays (waiting for freight prices to recover and the availability of containers) and continuation of the contract. According to Murphy/Sea-Intelligence Maritime Analysis, the situation has not ended yet until the end of 2020 since both of spot rates as well as contract rate were indicated to soar.  

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Peter Tirschwell from JOC said that for anyone who might have thought the arrival of the new year would bring relief from the crushing port congestion and global deceleration of containers flows, disappointment arrived promptly and will likely linger for months to come.

Normally, the period of March/April is slack session, but it will not happen this year and the period of June and July will back to peak season again.

So, in conclusion, the problem of container shortage likely will continue since the global production of container box was lower last year, compared to the cumulative average in the last five years. According to Drewry, in 2020, the container production grew 1% only due to the pandemic, lower than a cumulative annual rate of 5% over the past decade.

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