Authors: Dr. Theo Notteboom, Dr. Athanasios Pallis and Dr. Jean-Paul Rodrigue

The COVID-19 pandemic produced new and unprecedented impacts on global supply chains, ports and shipping. The pandemic has been a stark reminder that external shocks are recurring events testing the resilience of the port industry. The shape of the industry remains dependent on economic prospects for which it has limited control. Still, the severity of the pandemic is unparalleled since it impacted a multiplicity of issues all at once, such as the supply of goods and resources, demand patterns, and even the operations of ships, terminals, and inland freight distribution systems.

1. Impact on Cargo Volumes and Vessel Calls

A. Q1 2020: the China effect

The Coronavirus emerged in China in December 2019. A full lockdown in China followed in January 2020, with an immediate effect on trade volumes as production activities were halted and ports were forced to downsize their activities. The closure of factories generated a supply shock in China. The disruptions in China and later also in other East Asian economies started to disrupt global supply chains, which made container carriers to announce a first wave of blank sailings. Given the sailing time between Asia and major markets in Europe and North America, the full impact of these blanked sailings on European and North American ports became only visible from March 2020 onwards.

A significant drop in the number of vessel calls followed the virus outbreak. On an annual basis, this decline reached almost 10% compared to the year before. The major drop occurred in passenger ports. The halting of passenger vessel operations accompanied lockdowns, social distancing, and sanitary measures imposed in several countries. In addition, the cruise industry decided to suspend all its operations. The second most affected type of calls were those by ro/ro vessels. On the other hand, the least impact was recorded in the number of calls by containers.

In the early months of the virus, the container volume situation in individual ports was largely determined by their exposure to trade with the Far East. For example, among European container ports, Rotterdam (no. 1 in Europe) and Hamburg (no. 3) handle the highest number of containers in relation to China. Furthermore, China represents about 30% of Hamburg’s container throughput and about one-fourth of Rotterdam’s volume. These figures exclude intra-European transshipment flows linked to the mainline services from/to China. Europe’s second-largest container port, Antwerp, is less exposed to China: 12% of total TEUs handled in 2019. Valencia (no. 5 in Europe in 2019) and Bremerhaven (no. 7) show similar shares of about 10 to 12%. Despite the fact that the effects of the COVID-19 crisis only partially affected the Q1 2020 throughput figures, most non-Asian ports recorded negative growth figures.

In the first months of COVID-19, terminal operators faced an unintended terminalization of the inventory with high utilization levels of terminal yards and warehousing facilities in ports. Many importers did not take ownership of the cargo since there were limited demand and the uncertainties of receiving the inventory in terms of labor costs and warehousing. It became acceptable to ‘abandon’ the inventory. In some cases, such as in the crude oil business, a part of the inventory was stored on ships and barges to cope with the temporary peak. Then, as demand remained low, the peak inventory situation at terminals and warehouses eased, with a growing number of facilities reporting a moderate or even severe underutilization. Another temporary consequence for shipping lines and terminals was a rebalancing of empty container flows. As demand dropped in North America and Europe, large volumes of empty containers were repositioned back to China and major exporters. This created storage problems at terminals and inland depots until the situation is rectified, assuming that trade resumes to pre-crisis levels and that trade imbalances remain similar.

B. Q2 2020: The health crisis becomes a pandemic

In mid-March, the World Health Organization officially declared the Coronacrisis a pandemic. At that time, the supply shock in Asia faded as factories were reopening on a massive scale. However, the sharp rise in full and semi lockdown situations in virtually all European countries and parts of the Americas generated a demand shock. This resulted in a second wave in blank sailings with container carriers withdrawing up to 20% of their network capacity on the main trade lanes and idling more than 2.7 million TEU of fleet capacity or more than 10% of the world’s container fleet. At least 40% of container ports worldwide have experienced blank sailings each week since the pandemic declaration in mid-March 2020. For some ports, the blank sailings implied 20% to even up to 50% fewer vessel calls for April, May, and June 2020, although for most ports, the impact was mainly visible on the main trade routes (e.g. Far East-Europe) and not so much on other trade routes. This wave of blank sailings negatively affected Q2 2020 volumes in main ports on the east-west trade routes.

As expected, the vast majority of the large container ports in the world recorded negative growth figures in the first half of 2020. The impact of the COVID-19 pandemic on container volumes has been less severe than the impact on the number of containership calls. The biggest ports of the world (i.e., those handling more than 10 million TEUs per year) experienced on average a smaller decline (-4%) than ports handling 3-10 million TEUs per year (-10%):

• The worst performers in H1 2020 among the large Asian container hubs included Dalian (-31%), Shenzhen (-10.8%), Port Klang (-9.3%), Shanghai (-6.9%) and Kaohsiung (-6.8%). Tianjin (+2.9%), Qingdao (+0.3%), Singapore (-1.1%), Busan (-1.1%) and Guangzhou (-1.6%) were among the least affected ports in the Far East.
• The situation in North America was far worse with all top ten ports of the continent recording negative growth. The situation in H1 2020 was particularly bad in Seattle/Tacoma (-18.3%), Los Angeles (-17.1%) and Norfolk (-12.4%), while Houston was able to limit the TEU drop to 2.3%.
• In Europe, the port of Antwerp was the only large gateway port which was able to reach a volume level in H1 2020 comparable to H1 2019 (+0.4%). Algeciras and Bremerhaven recorded a rather modest decline, while others saw their TEU throughput drop by more than 20% (i.e. Le Havre and Barcelona).

Ports less affected by the crisis were those that benefited from their strong focus on containerized basic goods and commodities, as well as from a central position as regional hubs in some shipping lines shipping networks. More vulnerable were the gateway ports serving mainly national hinterlands which are subjected to intense competition for transshipment flows, and with a strong specialization in containerized consumer products mainly originating from Asia. However, for some ports, the trends in handling cargoes continued to be determined by broader developments i.e. take-overs or the dynamics that had been developed in past years. Port pricing plays an essential role in this reconfiguration, with larger ports, possessing more developed hinterland transport systems, more resilient than small and medium-sized ports. Also, ports that have balanced traffic were likely to be less impacted. 

As liner service rationalization occurs, shipping companies face a more comprehensive review of their port calls and network configurations. Port pricing plays an important role in this reconfiguration with larger ports and their more developed hinterland transport systems in a better position than small and medium-sized ports. Ports with a relatively captive hinterland in proximity have more latitude than ports with a more long-distance and fragmented hinterland or those that depend heavily on transshipment. Also, ports that have balanced traffic are less impacted. However, it is not entirely clear yet to what extent sustained declines in traffic could be a factor of cargo concentration or deconcentration in port systems.

In the early Spring of 2020, shipping lines started using some of the world’s leading transshipment hubs (such as Bremerhaven, Busan, Panama, etc.) as advanced yard storage to convince shippers to begin moving goods early in anticipation of a demand recovery. Shipping lines offering flexible storage solutions to shippers not only minimized booking cancelations but also helped to limit congestion in ports of discharge, thus improving efficiency, as products were placed closer to distribution networks. However, at the same time, shippers generating substantial container traffic (e.g. major retailers such as Arcadeia, C&A, Gap, Levi Strauss, Walmart, etc.) were among those that made no immediate commitment to collect and transport orders completed, stored, and in production. 

C. Second Half of 2020: Moving to a Demand Peak in Container Volumes

In the late Summer of 2020, shipping lines drastically reduced the number of blank sailings to accommodate the demand growth: the share of idle vessels in total fleet capacity decreased from 11.6% in May 2020 to only 1.8% in October 2020. In late 2020/early 2021, the strong demand peak on the Europe-Far East and trans-Pacific trade routes resulted in vessel capacity shortages and severe box availability issues. The demand/supply imbalance resulted in port congestion, box rollings, ship deviations and a historically low schedule integrity. All these factors combined led to sharp increases of container freight rates and further improved the operating margins of container carriers.

The demand peak led to a strong recovery of container volumes in the main container ports around the world:

• Europe: Antwerp was the only large gateway port in the top 15 which was able to reach a modest increase of the TEU volume in 2020 (+1.4%). The vast majority of top 15 ports still recorded negative growth figures, despite a modest to strong recovery of container trade volumes in H2 2020. Le Havre (-14.4%), Barcelona (-11%), Genoa (-10%) and Hamburg (-7.9%) were most affected by the Pandemic. These are all gateway ports serving mainly national hinterlands which are subjected to intense competition for transhipment flows, and with a strong specialization in containerized consumer products mainly originating from Asia. Cosco-owned Greek hub port of Piraeus (-3.8%) and the port of Gdansk in Poland (-7.2%), two fast climbers in the European container port ranking in the past years, both recorded negative growth figures for the first time since many years.
• Asia: Except for Dalian, all major ports in the Far East experienced less volume impacts in 2020 compared to the 2009 crisis. About half of the depicted ports even achieved a modest y-o-y TEU increase in 2020, while only Dalian (-41.7%) and Kaohsiung (-7.7%) had to accept significant volume drops.
• North America: many North American ports, particularly West Coast ports, reported record monthly throughput figures for late 2020/early 2021, mainly due to consumer spending and large-scale restocking taking place. Volume growth would even be higher if supply chains would not be confronted with equipment shortages (empty containers) and port congestion. This trade volume peak partly compensated the very negative results of H1 2020. For example, the y-o-y TEU loss in Los Angeles declined from 17% in H1 2020 to only 1.5% for the entire year. Comparable trends were observed in other ports.

Overall, the ports that have been impacted the most (in terms of an initial steep decline followed by a strong recovery) usually have a strong orientation on consumer products and a strong position as gateways for containerized trade flows in relation to Asia.

There is no evidence of a correlation between traffic changes occurring during the 2008-09 financial crisis and COVID-19, either at the regional or global level. The pattern is significantly different. At the regional level, the changes in container traffic patterns observed during the financial crisis cannot be used as a predictor for the potential impacts of COVID-19 on ports and shipping networks. For an external shock such as COVID-19, its impacts are the outcome of how individual ports fit within complex supply chains.

2. Impact on Container Ship Size and Liner Shipping Connectivity

The maximum size of the container vessels deployed at each port continued to increase despite the pandemic as shipping lines continue to exploit economies of scale. As a result, terminal operations and the entire maritime supply chain faced additional pressure as they hosted fewer vessel calls with substantially more cargoes to be handled per port call.

A negative trend has been observed across the other components that determine liner shipping connectivity levels. The number of liner shipping services, weekly port calls, liner shipping operators, vessel carrying capacity deployed, and direct calls, have dropped over the first half of 2020. The decline intensified since the COVID-19 pandemic was declared in Week 12 of 2020. The negative impact of the COVID-19 pandemic on liner shipping connectivity levels varied widely at the regional level. In Asia and Oceania, ports experienced a moderate decrease in connectivity levels. Even though China was the first country to face the challenges caused by the COVID-19 pandemic, the initial negative effect on the liner shipping connectivity of Chinese ports was relatively moderate. Europe, which was the second wave after China, has seen substantial drops in liner shipping connectivity levels. In North America, the picture was mixed. West Coast port in the United States experienced significant negative trends, especially during the second quarter of 2020. The impact was not as severe on ports located on the East Coast. In Central and Latin America, container ports showed signs of strength as their liner shipping connectivity levels remained steady and, in some cases, increased during the early days of the pandemic. African ports also performed comparatively well. During the second quarter of 2020, the decline of the liner shipping connectivity accelerated.

Overall, the ports that have been impacted the most (in terms of an initial steep decline followed by a strong recovery) usually have a strong orientation on consumer products and a strong position as gateways for containerized trade flows in relation to Asia.

3. Port Authorities: Leading Adaption and Risks Mitigation

Port Authorities have strived to mitigate the risks and challenges generated by the COVID-19 crisis by adopting a range of responses and measures. Their responses have been multi-dimensional and included:

• operational adjustments; 
• financial/economic adjustments;
• sanitary protocols and processes; and 
• adjustments to working practices and organizational aspects.

As a result, most ports managed to avoid significant disruptions to cargo operations. This was facilitated by the reduced number of vessel port calls and the reduced maritime trade flows. 

Some of the responses at the port level entailed a substantial reorganization of operations. These include (a) the prioritization of essential services; (b) the reorganization of operations and working conditions due to sanitary protocols; and (c) the advancement of digitalization and communication strategies. 

Responding to the COVID-19 challenges required collaboration and coordination among all stakeholders.  When established, collective actions have been more effective in combating risks and improving resilience. Adjustments to governance and communication strategies of parties involved have been equally instrumental. Existing contingency plans have facilitated quick responses to the crisis. Ports that lacked such plans had to take ad hoc responses or develop plans in a short period of time during the crisis.

Sanitary protocols and related measures had to be urgently implemented even within a day. The capacity to coordinate with national and/or local authorities and communicate with other actors along the chain was critical to the response and coping strategies. The capacity to put in place the necessary protocols when treating (suspected) COVID-19 cases was also key.

Developing guidelines for ensuring a safe interface between ship and shore-based personnel has been critical, not least due to the nature of the crisis. This has taken place both at the local and at the international level and with support from relevant industry associations and international organizations. The ‘crew changes’ challenge highlighted a need for orchestrating an integrated approach by all. Crew changes have been one of the major issues faced by the maritime supply chain. This is largely due to difficulties related to third parties (i.e. airports, and public policies imposing restrictions to traveling, etc. 

For ports, the financial implications of the crisis are manifold and more pronounced in the case of fully privatized ports. These include (i) the difficulties of ports themselves to continue their financing, (ii) the limited financial capacities of several port providers that are constrained by lockdowns and suppressed demand, and (iii) the challenges imposed on port users. The capacity of ports to adopt urgent and compensatory measures, by, for example, taking advantage of cash flows for early payment of providers, or delay of payments by some of their users, can contribute to mitigating the negative effects of the crisis.

Multidimensional adjustments of working practices were used to limit personnel shortages Ports were able to diffuse several risks when they allowed for telecommuting, implemented sanitary protocols including social distancing, rearranged working shifts, limited meetings and traveling, took advantage of relevant social policies, and made greater use of technology.  Similar adjustments were identified in the case of shipping lines. Responses to the crisis and the ‘back to work practices’ vary in scope and type. Nonetheless, the capacity for active and prompt interventions has proved to be crucial.

Working and operational adjustment measures that helped the sector adapt have been transformational for the maritime supply chain stakeholders. Digitalization of processes and the use of technology by much of the workforce have triggered the need to revisit operations and upgrade knowledge and skills.

Maintaining landside operations has been the most difficult task for those involved in the maritime supply chain. Long queues at borders have highlighted the importance of reliable chains when a crisis like a pandemic erupts. These difficulties did not affect maritime countries only. Land-locked and transit countries need to maintain their access to seaports as well. Shippers and ports have worked to address land-side operations, but the ability to adapt has not been always effective. The main instruments used to address these issues have been digitalization and enhanced communications and coordination with other stakeholders and public authorities. Digitalization of interactions and information sharing have been critical to the continuity of maritime transport operations during the pandemic. All seem to agree that digitalization will be a key component of resilience building efforts. 

Public policy initiatives have facilitated relief and recovery in the maritime transport sector. These initiatives have been both economic and operational. Such measures have been adopted at the national level, with the challenge in some countries being the need to align federal and state-level initiatives. Supranational institutions and international organizations have also adopted a long list of initiatives. Applied at a broader scale, these initiatives have facilitated risk mitigation. 

References

• Notteboom T.E. and Pallis A.A. (2020;2021). IAPH Port Economic Impact Barometer, various issues, Antwerp: International Association of Ports & Harbors.
• Notteboom T.E. Pallis A.A. and Rodrigue J-P. (2021). Ports and Shipping in the COVID-19 Pandemic. Port Technology International, 100, 80-84.
• Notteboom T.E. Pallis A.A. and Rodrigue J-P. (2021). Disruptions and Resilience in Container Shipping, Ports and Supply chains: The COVID-19 pandemic vs. the 2008-2009 Financial Crisis. Maritime Economics and Logistics. doi.org/10.1057/s41278-020-00180-5
• UNCTAD (2020). COVID-19 and maritime transport: impact and responses. UNCATD/DTL/TLB/NF/2020/1. Geneva: UNCTAD.