And what about ferry and cruise traffic, which has been totally shut down since 15 March?
Passenger traffic, like air travel, is paying a heavy price due to the health crisis.
Ferry connections between France and the United Kingdom have been limited to the bare minimum during the entire lockdown period, with just a few lines remaining active for freight transport. Since 29 June, and despite the quarantine applied by the United Kingdom to anyone entering its territory, services are gradually resuming, restricting loads to comply with health constraints. In Le Havre, it was on 13 July that we welcomed the return of Brittany Ferries’ Connemara for 3 departures per week, on Mondays, Tuesdays and Wednesdays throughout the summer season.
Sea and river cruise stopovers, following a ministerial decree of 14 March, were no longer allowed in French ports. The lifting of the state of health emergency by the government on 10 July allowed the return of maritime cruises to the port of Le Havre with the first stopover by the Dumont D'Urville on 11 July: the company Le Ponant plans 13 departures between 11 July and 26 September to discover the Normandy and Brittany coast. And river cruises can also once again follow the Seine’s meandering course.
Questions from the previous week
When one health crisis hides another: double impact on meat exports to China?
China is the world's largest consumer and importer of pork by volume, with 1.5 million tonnes (Mt) in 2018. However, it is also the world's leading producer, with 53.4 Mt in 2017, compared to 23.67 Mt for the European Union.
However, since the end of 2018, China has been facing an ever-expanding epidemic of African swine fever which has spread to neighbouring countries. In July 2019, China's pig herd was down 32.2% on 2018, resulting in a nearly 70% surge in pork prices.
This shortage of pigs in China represented an opportunity for the European Union and Brazil. The European Union increased its exports by 45% over the first half of 2019. All members benefited, with Spain coming out on top, recording a 90% increase in sales, in 2019 becoming China's leading supplier ahead of Germany.
In France, an all-time high, exports reached nearly 170 000 tonnes in 2019, up from 100 000 to 110 000 tonnes previously, a volume that already accounted for 20% of French exports. The main French producer announced a 60% increase in sales for 2019.
During the health crisis, the entire meat industry was affected. With lockdown, production lines have been shut down. In terms of logistics, the shortage of empty reefer containers has severely hampered exports to China. According to the main French producers, the availability rate of reefers was thus about 30-40% lower than they needed. This logistical tension has been exacerbated by high freight rates and lack of space on ships.
However, Chinese demand is not weakening this year and, despite logistical difficulties and still high transport costs, Chinese imports are expected to increase during 2020. Chinese demand is also shifting towards high-end meat products. Finally, due to swine fever in Belgium, flows to China have to pass through a French port.
Have some urban logistics projects been halted by the crisis?
On the contrary, the Operational Innovations Mission (OIM), created within HAROPA 5 years ago, continued to be busy during lockdown, with companies willing to test urban delivery solutions by water.
The OIM acts as a solution assembler by connecting the various players required for operational assembly: shippers, logisticians, river carriers, handlers and infrastructure managers. This also helps support all initiatives carried out by river carriers in the development of self-unloading boats, which means no handling tools are required on the docks, providing great logistical flexibility.
Currently, 10 files are being studied at the OIM. The areas of activity concern e-commerce, showrooms, services dedicated to the city (mobility, waste management etc.). From experience, we know that this type of project has a long gestation (2 to 3 years on average), but we hope to start implementing the experimental phases in the second quarter of 2020.
Was the sugar sector influenced by Brazil during the crisis?
As is often the case with sugar, it is the Brazilian situation that has had the biggest impact on the market in recent weeks.
As such, over 25 years, Brazil has become a giant of the sugar sector with a 4-fold increase in its production, reaching 30 million tons (Mt) in 2019, after rising to 40 Mt in 2016. It is largely thanks to the Brazilian government's ethanol policy over the past 40 years and the flexibility of cane-processing plants that the growth in sugar production has been achieved. These plants can produce sugar and ethanol in proportions set by their configuration, which allows Brazil to arbitrate its production each year according to the world market (demand, prices, competition etc).
But Brazil has also seen an explosion in exports. Thus, by exporting up to 70% of its production, some years it represents nearly 50% of world trade, thus exerting a considerable influence on this market.
During this period of health crisis, the weakness of the Brazilian real against the dollar and the collapse in the price of oil have pushed Brazilian factories to strongly orient cane towards sugar production and export at the expense of ethanol production. So Brazilian production is expected to increase by 10 Mt.
India, which had overtaken Brazil last year in terms of production, is also expected to see an increase in production, while domestic consumption is expected to decline in line with lockdown. In India, the health crisis, in addition to consumption, has temporarily impacted exports as Indian ports idled for several weeks. However, these are now back up and running.
Thanks to these increases in production in Brazil and India, the world sugar market, which last year posted a deficit of 9.8 Mt, is therefore expected this year to be only slightly in deficit at 1.6 Mt (source: FO Litch).
In addition, sugar consumption has slowed worldwide due to the closure of bars and restaurants and the cancellation of sporting and festive events that impact the consumption of sodas and ice cream. Consumption will therefore not continue the growth of recent years.
The increase in sugar production combined with the slowdown in world consumption has led to lower sugar prices, which reached their lowest level for 12 years in April.
In France, beet-planted areas are expected to fall by 5% this year in anticipation of plant closures announced for 2021, raising hopes among sugar producers for a recovery in European prices.
Finally, as expected, exports to third countries are down again with 400kt planned for the 2019/2020 campaign compared to 570kt achieved last year and 1337Mt two years ago (FranceAgriMer data).
What does the future hold for the post-health crisis fuel industry?
Fuel consumption has fallen very sharply since the start of lockdown. This decrease has led refineries to adapt their production to consumption to avoid saturation of refined product stocks.
However, changing consumption has varied differently depending on the type of fuel:
> Diesel consumption (2019: 2.75Mt/month) has been halved. Its manufacture continued throughout the lockdown period. The return to normality is expected to be rapid with the resumption of industrial activities.
> Consumption of unleaded fuel (2019: 0.71Mt/month) and LPG (2019: 0.15Mt/month) decreased by three-quarters. The gradual resumption of activity and relaxing of lockdown will allow a gradual return to the level at the beginning of the year, but with a downside due to the continuation of teleworking and the associated reduction of road traffic.
> The consumption of kerosene (2019: 0.58Mt/month) is virtually nil due to the stoppage of air transport. The very slow recovery in this sector does not bode well for a return to a normalised situation before 2023.
These declines in consumption have had a significant impact on product flows in all countries impacted by the pandemic. In France, this has resulted in a significant reduction in petrol exports and diesel imports.
Moreover, the decline in the level of production of French refineries has led to a reduction in imports of crude oil, a global phenomenon illustrated by changes in crude oil prices and production reduction agreements in producing countries. Crude oil consumption fell at the height of the pandemic by 30%.
However, there is no shortage of development projects in 2020/2025, with a focus on the environment and circular economy. The new marine fuel regulations, which came into force on January 1, 2020, now require the use of heavy fuel (LSFO) with a low sulphur content (less than 0.5%). In addition, LNG propulsion is developing, both in river and maritime transport. Thus, with the construction and future commissioning of new LNG-powered vessels, the greening of the French fleet is underway.
Disrupted yet functional ports
Africa, the last continent affected by Covid-19, was able to react very quickly by bringing in physical protection measures. Overall, maritime traffic remained stable during the crisis, with an actual increase in food flows. The ports, whose objective was to ensure operational continuity of services, remained functional.
Within this context, however, African ports still suffered some disruption. Health measures, such as crew control, limited time to carry out customs formalities, curfews in some countries and social distancing measures at terminals have not helped the smooth flow of goods at ports.
However, these operational difficulties have been different from country to country and are not all attributable to the health crisis. The crisis has sometimes highlighted chronic pre-existing issues in some African ports, such as the terminals in the port of Abidjan, which regularly suffer from congestion during the annual cocoa export campaign.
An unexpected positive note: the development of digitalisation
The implementation of cumulative barrier measures to traffic that has remained stable has led to significant delays in the provision of containers.
One of the solutions to address the issues was digitalisation. Port actors, forced to change their habits to speed up procedures, have turned to digitalisation, especially for the clearance of goods.
It is to be hoped that this commitment to digitalisation, which is now in high demand by operators, will continue post-Covid. This would stimulate port logistics through improved fluidity of goods, effectively reducing post-arrival times at African ports.
Has the automotive industry recovered in China?
There is a disparity in China between the domestic market, which is stable - or even growing in April - and the export market, which has declined significantly since the beginning of the year due to the lockdown in foreign countries.
In terms of activity, factories have restarted in Asia and in particular in Wuhan, the cradle of the Chinese automotive industry, where the factory situation has almost returned to normal. Orders are starting again. Manufacturers, however, need to contain their volumes as concessions are reopening slowly around the world and have to sell their existing stocks before they can absorb new volumes.
As a result, import and export maritime flows of vehicles are gradually picking up. In France, due to the gradual resumption of factories and the reopening of concessions, road logistics are slowly recovering and should help empty stocks to accept import volumes.
« What is the impact of the health crisis on the biomass/wood sector? »
This sector, so often put forward as a substitute for fossil fuels, is awkwardly positioned in France at this time of health crisis. Here’s why.
A sharp reduction in demand
A significant decline in demand for wood-energy was identified very quickly in some economic sectors. Since 15 March, the beginning of lockdown in France, many boilers and boiler rooms have been idling or are at a standstill. Some heat networks are no longer required because the public establishments they served, such as schools, swimming pools or hotel complexes, have been standing empty. Others, on the other hand, but fewer in number, have been in great demand (hospitals, old people’s homes etc), but in addition to gas-type fossil fuels, have not been able to compensate for these declines.
Fossil fuel prices at record lows
Moreover, the dramatically low prices of fossil fuels (especially gas and oil) are preventing a rapid recovery for the sector.
The professional federations (CIBE, FNB, ADEME etc) have recently intervened on the current difficulties facing the recovery of the biomass/wood sector, given the excessively low prices of fossil fuels and the very aggressive trade policies of the oil and gas sectors seeking to recover market share.
Abnormally high stocks
The available volumes of wood-fuel in France are currently increasing.
The wood sector first faces the problem of cutting down many "bark beetle-infested" trees intended to be burned in whole in boilers because they are unusable in first-stage processing. By digging galleries under the tree bark, these insects degrade their forests, forcing trees to be cut down quickly to prevent an even faster spread. The beetle epidemic is progressing and is currently spreading over most spruce forests in northern France.
Moreover, the stocks of French pellet producers in France are substantial, as the heating season has not been very active and the last supply campaign has not been intense.
On the other hand, stocks of wood waste from sorting centres - closed during the lockdown period - have melted away in recent weeks, leaving less volume available to export channels for northern European boilers. But this is a temporary situation...
It should be remembered that, with the exception of specific pellets for industrial boilers, other imports are supplemented by very active French production.
An imbalance between supply and demand that severely weakens the sector
The exacerbation of the supply/demand imbalance - with a reduction in needs on the one hand and very high stocks on the other - has seriously weakened the sector and is not conducive to recovery. Moreover, plans to develop new collective boilers in France have almost stalled, as a result of unfinished municipal elections preventing any decision-making by municipalities.
Despite the public authorities’ additional support and assistance measures, the sector does not foresee major changes in the situation in the short term. As this sector is seasonal, the recovery is expected to appear in the next campaign.
Despite a difficult period, biomass/wood is an up-and-coming sector
Within this constrained context, however, HAROPA's wood-energy maritime flows increased in the first four months of the year compared to the same period in 2019, reflecting the dynamics of this sector.
Although the economic issues have severely disrupted the sector, it remains on the up. Thus, wood is the primary renewable energy source used in France. This resource is therefore expected to make a significant contribution to France's energy and climate targets of significantly reducing fossil fuel consumption.
Is the Asian recovery on the cards?
Today, following the health and then the production crisis, the new challenge is the demand crisis, particularly in China. As such, although factory activity has been restarted, these factories export mainly to Europe and the United States, areas still in lockdown or at the early stages of recovery. Many orders scheduled for March or April have been postponed to June.
In South Korea, a country that has not experienced general lockdown, the economic situation has never stopped, although it is largely dependent on other countries for its own industry. As a result, the paralysis of foreign markets has had a very heavy impact on its economic activity. This is particularly the case for certain raw materials coming from Africa and for sophisticated spare parts manufactured in Europe. The health crisis and lockdown in these countries is slowing down the supply chain of imports and, at the same time, the level of production.
Asian ports are 100% operational
Thanks to the lifting of lockdown, Asian ports have been able to resume activity, with maritime services maintained and blank sailings - cancellation of ship rotations - declining.
In China, ports, considered critical to the economy, were among the first to restart. Transport companies, which were closed during the Chinese lockdown, have resumed their activity, allowing the transport and unloading of goods at ports again.
In South Korea, port services are also provided.
There is currently a significant gap between the internal market where, since the beginning of lockdown, there has been a decline in milling, ethanol and starch activities - with, as a result, less wheat consumed in the domestic market than was expected - and the external market, where demand remains very strong.
Traditional buying countries such as Egypt and Algeria have continued their calls for tender. Demand has even increased somewhat due to the build-up of stocks to avoid disruption during the crisis and the increase in demand in some countries such as Morocco, which is anticipating a poor harvest due to drought. The start of Ramadan also had an amplifying effect on cereal purchases. However, the external market remained fairly balanced in April as the main exporters (EU, Black Sea, US, CND) still had sufficient supply. At present, it is France that still has goods to export - even more so with the decline in domestic consumption - and which continues to ship large volumes faced with supply that’s slowing down in the Black Sea.
With regard to grain bulk freight rates, there is no particular change. The BDI (Baltic Dry Index) rose very slightly in April but has since fallen back and remains at a very low level.
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The current public health crisis has led to a major imbalance between transport supply capacity – notably supply involving very large vessels – and demand (import and export).
Freight rates are currently closely linked to supply overcapacity (or weak demand). Movement in these rates will therefore be tied to resumption of economic activity in the various global regions. Certain organisations publish spot rates which serve as benchmark indicators. This is the case for the SCFI (Shanghai Containerized Freight Index), which tracks spot freight rates for maritime transport between Shanghai and Northern Europe: it is calculated using data from 22 major (international) shipping lines and a panel comprising 26 Chinese companies, shippers and freight forwarders. It includes maritime freight (spot rates) and the relevant trade-related surcharges.
Where blank sailings* are concerned, these are also a consequence of the imbalance between transport supply and demand. Shipping lines need to adjust their services to match market requirements. We observe that blank sailings are currently impacting several trades of relevance to Europe: Far East / Southeast Asia, South Asia (India – Pakistan – Bangladesh - Sri Lanka) and North America. This is an ongoing effect accompanying the Covid-19 pandemic and it is impacting both supply and demand in international trade.
The PUSH team of experts will be conducting an in-depth analysis of this topic the results of which we will be presenting in a forthcoming issue.
* “Blank sailings” are cancellations of a rotation by one (or more) vessel(s) as determined by all the members of a consortium in order to adjust the transport offering to match major reductions in market demand. Such reductions may be foreseeable for seasonal reasons (e.g. the Chinese New Year holiday period) or a consequence of a long-lasting, unforeseeable phenomenon (e.g. Covid-19).
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