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By Jan Sierhuis

COVID-19 pandemic has disrupted global trade. The reason is simple: trade and tourism are great vehicles for pandemics.

The 2020 UNCTAD Review of Maritime Transport predicted a lasting effect on trade patterns and supply chains. UNCTAD noted that the Caribbean is hard hit, given its dependence on overseas tourism and container trade, both heavily disrupted by the pandemic crisis. Portside Caribbean, in a three-part series, a review of the impact of this global crisis on Caribbean seaports and the implications for the future. This second in the series focuses on the economic impact.COVID-19 pandemic has disrupted global trade. The reason is simple: trade and tourism are great vehicles for pandemics. The 2020 UNCTAD Review of Maritime Transport predicted a lasting effect on trade patterns and supply chains. UNCTAD noted that the Caribbean is hard hit, given its dependence on overseas tourism and container trade, both heavily disrupted by the pandemic crisis. Portside Caribbean, in a three-part series, a review of the impact of this global crisis on Caribbean seaports and the implications for the future. This second in the series focuses on the economic impact.

The war against COVID-19 is still raging and the Caribbean remains a major battleground. Its maritime industry is ‘caught in the crossfire’.

The International Association of Ports and Harbours (IAPH) launched its Port Economic Impact Barometer in April 2020, tracking data from IAPH member ports worldwide. In May 2021, the One Year Impact Report was published.
Initially, more than 40% of participating ports worldwide indicated more than 5% decline in vessels calls. This declined to 29% of ports by April 2021. By then, only 4.8% of ports had indicated declines greater than 25% – about half compared to a year before. Based on this, IAPH concluded that vessel trade has been slowly recovering to pre-COVID-19 levels, particularly in the Asia trades. However, recovery has been fragile and local disruptions still occurred.

Shockwaves
IAPH noted three “shockwaves” hitting the world trade port system:

1. Early 2021, China production came to a halt, resulting in a worldwide “supply shock”, quickly followed by a “demand shock” of lockdowns in Europe and the US.

2. After the summer, a recovery phase began, which was still ongoing at time of writing.

3. The recovery led to a demand hike in the USA and EU, leading to a sharp rate increase in the already disrupted maritime transport system. Charter and container rates rose sharply as the shipping lines managed capacity and reallocated supply to higher demand markets. As demand keeps rising over supply, rates continue to soar.

Tom Paelinck, CEO of Caribbean Feeder Services (CFS), said, “Charter rates are rising sharply for three-year vessel contracts. And short-term contracts are sky rocketing”.

Still, UNCTAD expects maritime trade to grow by 4.8% in 2021, following a 4.1% decline in 2020. In the Caribbean, recovery will be much slower, however, as demand here will only return when tourism returns.

Container ports

In the Americas, the full impact of COVID-19 came later than in Europe. UNCTAD reported that maritime trade growth was already decelerating in 2019, before the disruption by the pandemic. IAPH reported that transpacific container trade declined with 6.6% in 2020, and transatlantic trade declined with 5.6%. The situation started to improve in July 2020, after having reached depths of 70% decline in May/June 2020.

No North American ports reported declines in container vessel calls after October 2020.

The return of demand in a situation of diminished supply led to high freight rates in the main trade lanes. This led to a disparity and disruption of the regional trading system, where demand did not return. Juan Carlos Croston, President of the Caribbean Shipping Association (CSA) and CEO of Manzanillo International Terminal (MIT), Panama, explained.

“Caribbean ports live in two realities: the ‘Caribbean’ and the ‘Deepsea’ reality. As demand came back strong in the major markets, already scarce capacity was relocated to the higher-demand trades, disrupting the Caribbean trade system. As a result, cargo delayed in the ports, lead to vessel delays and congestion in the terminals.”

Some terminals, like MIT, also had to deal with labour shortages during the local COVID-19 lockdowns, adding to the congestion problem. Fortunately, the shipping industry worked with the ports to mitigate claims and penalties.
“In the Florida trade, container rates did go up somewhat,” said Paelinck. “However, in the overseas trades, freight and charter rates tripled. Supply then shifted to these high-rate markets. The only way out of this disparity is for demand to come back to the Caribbean. That is, a return of tourism, including cruise tourism,” he said.

Meanwhile, industry sources pointed to order book indications that 115 new post-Panamax container vessels will be coming into the trade in the coming years. This new capacity will certainly have an impact and Portside Caribbean will continue to monitor these developments.

Cruise ports
Most USA and Caribbean ports were still indicating to IAPH a 50 to 90% decline in vessel and passenger arrivals. Meanwhile, cruise lines are preparing to return to the Caribbean in the coming winter season. Demand, they claimed, was picking up, but regulatory issues prevented vessels from sailing from high-capacity US ports. As a result of using chartered airlifts, cruise lines were temporarily sailing ships half empty from Caribbean ports. The Celebrity Millenium started operations from Dutch Sint Maarten on June 5, 2021, sailing to Aruba, Curaçao and Barbados, making use of the advanced vaccination programmes and port health protocols there in the Dutch Caribbean destinations.

Most vessels will return to USA ports, once the CDC Conditional Sailing Order is relaxed. However, it was unclear when exactly this would happen.

Carnival Cruise Lines started its first Miami operation on July 4 and planned to return to the ports Canaveral and Galveston shortly thereafter.

A spread of vessels along the southern US seaboard will service the ever-important and less complicated drive/cruise market. The southern Caribbean will benefit from a return of “fly/cruises” to its homeports, like Barbados (from the UK), Dominican Republic (from Germany) and Puerto Rico (from USA). A full return of cruise ships and passengers, however, may not happen until 2023. The situation will most likely improve gradually, as vaccinations increase in the source markets and the destinations.

“In June, the Florida Court decided the CDC regulations are too challenging for the cruise industry. The CDC appealed and won the case in July. The system therefore remains in place, but the pressure to find a workable solution is there,” said Albert Elens, CSA Cruise Committee Chairman and CCO of cruise agent SEL Maduro & Sons in Curaçao.

“The current practice is: the CSO (Conditional Sailing Order) permits cruise ships to sail on commercial voyages, if they satisfy one of two different certification options. The first is to ensure that 95% of passengers and 98% of crew is vaccinated. The second is to undertake “trial cruise” test runs to demonstrate each vessel’s COVID-control protocols. The vaccination-mandatory option has encountered one challenge. The State of Florida decided to ban all businesses from requiring proof of vaccination, including cruise lines, with a potential penalty per customer. There may be ways to work around this, but the industry does not want to end up in all kind of administration issues and liability risks.”

Implications
The impact of COVID-19 on Caribbean ports has been relatively high, mainly due to the regional tourism crisis and the related disruptions in the global trade system. UNCTAD points out that the pandemic has set off several trends towards more resilience in maritime trade. World production will shift towards South-East Asia and this may result in new trade patterns. 

Paelinck’s advice to Caribbean ports is to look more towards the actual clients ... which is not the shipping line, but rather the local trader.

Juan Carlos Croston thinks the system is flexible enough to deal with this temporary disruption. His main concern is the debt situation faced by Caribbean governments which, he said, may prevent them from developing required port infrastructure and services after the crisis.

A shift to private sector investments may be the solution, but this will require a paradigm shift in many Caribbean territories. Albert Elens advises Caribbean cruise ports to invest in flexible, approved health protocols tied in with the industry and in local vaccination programmes to stimulate a swift revival of tourism.

At the moment of this writing, with new threats posed by variants of the novel coronavirus (particularly the so-called Delta variant) and widespread hesitancy slowing down vaccination rates in many countries, Caribbean demand and economic recovery may have to wait until 2023. —

*Jan Sierhuis is a Caribbean maritime professional with a career of more than 30 years.

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