"I think the markets and many people are still underestimating the knock-on effects that the coronavirus will have," warned Angela Chao, CEO of the Foremost Group, a dry bulk shipping owner that does considerable business with China.
"Even yesterday, the U.S. [stock markets] were still up," she said. Just one example of potentially excessive optimism: Shares of crude-tanker owner DHT Holdings (NYSE: DHT) are up 10% since Friday, as investors bet on a V-shaped post-virus bounce.
"People are still likening the coronavirus to SARS," she lamented, insisting that this is a mistake. "The viruses are very different and more importantly, China's position in the global economy, both in terms of its connectedness as well as its impact, is completely different." She noted that SARS was a "1% blip" for China's economy. Today, a 1% change in China's GDP would equate to 10 times the nominal value.
"China also has the biggest expenditure of tourists by far. Back in 2003 [when SARS struck], it was the seventh most important tourist population. So, this [drop in Chinese tourists to other countries] will have an immediate knock-on effect on world economies," she said.
On a positive note, she said that "the sharper the reduction, the swifter and broader the impact of stimulus of the Chinese government." Large-scale stimulus is already underway.
Other panelists at the Tradewinds event echoed Chao's concerns. "The challenges related to coronavirus are immense," cautioned Jason Klopfer, managing director of Navig8 America LLC, which oversees the U.S. operations of Navig8 Group, an owner of tankers. "I don't think we've even scratched the surface of the knock-on effects we're going to see in the market, certainly in the upcoming weeks, if not months, and perhaps years," Klofper said.
According to Kirstin Holth, global head of ocean industries at the bank DNB ASA, "The virus is really hitting and I think it is being underestimated. Beyond the first wave, there will be the second, third and fourth waves that are coming that will affect the economy. It will really have an impact on GDP, not just in China, but across the world, and that will have an impact on all of us [in shipping]."
"On the finance side, one of the things we've learned is you'd better be prepared for one of these things before they come, because when they come, it happens too quickly," he said. "You either have the liquidity before it comes or you don't. With Scorpio Bulkers, we had a fair amount of liquidity and since it [coronavirus] started, the CFO has literally been doing everything he can as fast as he can to raise more liquidity, because you've got a short window and after that, there's not much you can do. Very soon the game changes to: Which companies can survive?"
According to John Lycouris, CEO of Dorian LPG USA, a subsidiary of liquefied petroleum gas (LPG) tanker owner Dorian LPG (NYSE: LPG), "There's going to be less demand for LPG, less demand for LNG [liquefied natural gas], for crude, and petroleum products. We think it's going to affect this quarter and next quarter and there's going to be a general slowdown for everybody in the wider shipping industry."
Dorian LPG has a vessel currently in a Chinese shipyard, so Lycouris was able to give an account of what's transpiring. "We have a ship in China, in a shipyard, with the crew quarantined. We are experiencing this issue firsthand. Keeping our crew safe is our first concern. We have managed to get some of the people who didn't want to stay onboard repatriated and have brought other people in.
"The shipyard has been extremely careful with the proper vetting of people and allowing people to go onboard but not come into contact with crew. So, we have some interesting information coming back to us. It shows how seriously China has taken this matter. They're carefully trying to progress with business as soon as possible, but there are delays. People cannot travel. Technicians and superintendents cannot easily come into China because of the 14-day quarantine period. These are some of the issues we're facing."
He also commented on LPG vessel-unloading issues in China, confirming that these operations are continuing. "We do have LPG ships coming into China. We actually have a couple of ships there right now. With LPG discharges, there is really no human interface, so there's not a problem," he said.
The same may not be true for operations of large containerships at Chinese ports, however. Industry professionals speaking to FreightWaves pointed to potential complications ahead for liner schedules, given that these vessels will have a Chinese pilot and Chinese port workers onboard as they load in China, and will then sail to destinations like Los Angeles and Long Beach for unloading, where American pilots and longshoreman will have interactions with the same crew.
More FreightWaves/American Shipper articles by Greg Miller
