In a recent press release, the World Trade Organization (WTO) announced their forecasts for the impact COVID-19 will have on world trade.
The organization emphasized that, given the uncertainty regarding the trajectory and duration of the pandemic, all forecasts are based on educated assumptions. For this reason, they provide two estimations: a best-case scenario and its chilling counterpart – the worst-case scenario.
The WTO predicts that if all goes well and the pandemic is brought under control as soon as possible, then 2020 global merchandise trade may only fall by 13% year-over-year compared to 2019. Of course, any drop is an unwanted occurrence, but at this point the shipping industry has accepted that a negative impact is an inevitable – an impending result of the economic standstill. The key is how high the drop percentage will be. The optimistic 13%, though undesired, is something the industry can overcome, higher than that could be detrimental to many, which brings us to the pessimistic scenario.
If governments do not band together to provide a united front to control the pandemic with effective policy responses, the decline could potentially fall by 32% or more.
This estimate is more than double that of the WTO’s “positive” scenario and could have damaging effects on many companies around the world from vessel operating carriers to beneficial cargo owners. The shipping industry would face closures and volume drops like never before, or at the very least, comparable to those of the 2008 global economic crisis.
Chinese exports fell by 6.6. percent year-on-year to $185.15 billion in March 2020, according to Trading Economics. This steep drop was a direct result of quarantining measures put into place in response to COVID-19. Currently, steamship lines are supplementing weak demand by implementing blank sailings for almost all trades. Reliable sources have noted that void sailings will remain in effect until mid-June. There are high rates across the board, with GRI’s applied on May 1st for Asia and Latin America trades. Pre-booking is recommended for all trades, due to a heightened level of blank sailings and tight space availability.
The WTO, along with many other organizations, is approaching the situation with a seemingly positive air.
They have released statements, such as the following from Director General Azevêdo: “the underlying causes of this economic crisis are very different from the previous ones. Our banks are not undercapitalized. The economic engine was in decent shape. But the pandemic cut the fuel line to the engine. If the fuel line is reconnected properly, a rapid, vigorous rebound is possible.” If the right policies are put into place, the global trade industry could recover relatively quickly from this setback.
Azevêdo goes on to denote that the two main factors that will dictate and determine the subsequent strength of the economy will be both the speed in which the pandemic is brought under control and the government’s policy choices. Economists estimate that, the quicker the pandemic is stifled, the more likely it is that the economy will recover to the forecasted trajectory of pre-COVID trends. At this point, everything is contingent upon timing.