This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
How trade tensions would be eased may remain the biggest black swan for year 2020, with its ripples gradually affecting the face of the global supply chain.
As trade tensions prolong, not only has the uncertainty spread, but also the traditional supply chain has been interrupted, since the cost of trading goods would no more be calculable and predictable. Cargo interests and manufacturers would then start to consider if relocating their sources of procurement or production lines to avoid possible trade barricades, either on raw materials or end products, would be of economic viability. We’ve observed its happening and proliferating over the year in 2019, and it could still be going on if trade tensions prevail.
The aftermath of the effect to liner shipping in 2019 was obvious. With weakening trade volume (which was also justified by lower or negative port throughput growths recorded recently), freight rates were actually under tremendous pressure. The reason the industry as a whole could have a better year than 2018 was believed to be lower fuel prices. While this may no longer be the case in 2020, with IMO compliance in place, conventional demand-supply curve will be back as the main factor to determine freight rate(s).
Judging from relevant economic growth forecasts for 2020, it is hard to predict that liner shipping will have a better year. The key to remaining afloat would depend on how fast and decisive we are able to be in adapting to the uncertainty and, of course, face-changing of the supply chain.