The Long and the Short of It

World trade is in serious trouble, and with the arrival of the COVID-19 pandemic, globalization is also under threat. The old system of trade was damaged by the US-China trade war, and the collapse of trade due to national lockdowns has been a body blow on top of that. The United States is now faced with Depression-like unemployment of over 40 million people. That, combined with the shutting of factories and retail outlets, has hammered both production and consumption. The inward-looking response by most countries will enfeeble any recovery, leave the worldwide economy vulnerable and spread global instability.

Retail sales in the United States during April were down a record 16.4 percent month-over-month and 21.6 percent year-over-year, and May numbers are unlikely to be much if any better. Imports are erratic, with one month up and the next down. Much of this is due to carriers tightly managing capacity, with nearly 12 percent out of service, and importers stockpiling to ensure sufficient supply for the hoped-for economic return. The supply chain, including the waterborne element, has withstood the challenges of the initial disruption, with the buildup of inventories one of the main responses.

All that being said, we are in the deepest economic downturn since the Great Depression. The question is how long will the downturn last? Will it be short as nations come out of lockdown to save their economies, or will fear of the pandemic stall a rapid recovery? It appears clear that we will not see a V-shaped rapid upturn. Getting 40 million people back to work will take time, especially with many fearful of catching the virus and staying home, making a rapid return to an economic boom unlikely.

Our view is that the recovery will be slow and will not really kick in until 2021, and even that assumes that there is no strong second cycle of infection. We expect a continuing decline in cargo volume in the second half of this year compared with the same period last year, which was already weak.

We may be in this for a long haul, and optimism remains in short supply.