Introduction
The COVID-19 pandemic has resulted in socio-economic impacts which will continue to be felt for a long time. One of the most affected sectors of the global economy is the shipping industry which is important to transportation of goods to different locations. As a result of the measures taken to combat the spread of COVID-19, many economies shut down through lockdowns. This resulted in a massive effect on the global economy as most economic activities ground to a halt, thereby affecting the shipping of goods across the world. Different measures have been implemented by different governments and organizations to deal with the impacts of the pandemic (FitzGerald et al., 2020). To avoid a possible financial and economic crisis, different governments have implemented the rollout of the stimulus package. The ship finance is already affected by the pandemic and the economic stimulus plan is also expected to take into consideration the shipping industry. The rollout of the stimulus package initiatives in response to the COVID-19 recession has had a remarkable impact on the shipping industry directly and indirectly.
Discussion
The factors of production affect economic growth and the shipping industry is an essential player in the production of goods and services globally as it allows the movement of goods and people to different places. Therefore, the operations of a ship are important and have direct and indirect impacts on the economy. Different governments across the world have implemented massive economic stimulus packages in different sectors to avoid the possible economic crisis and recession because of the pandemic (Barua, 2020). The shipping industry is one of the important sectors of any economy as it is an enabler of economic activities. The shipping industry controls various aspects of the economy and the stimulus packages provided in different sectors will have an impact on ship finance as discussed below.
Stock Prices
As many industries face a decline in the demand for services such as passenger airlines and tourism, the shipping industry has seen an exponential increase in demand for cargo services (Gössling, 2020). As a result of the increase in demand for cargo shipping services, the shipping industry has seen an increase in interest from investors thereby driving up stock prices of ship ownership and operations. One of the indicators of economic growth or decline in an economy is the change in stock prices (Djuraskovic et al., 2018). Since the beginning of the pandemic, container shipping stocks have increased. As a result of the increase in container shipping stocks, there has been an increase in the sale of these shares. Through government checks, people can purchase these shares thereby driving the prices of these stocks further.
On the other hand, not all shipping products have been lucky. For instance, gas carriers and tanker spots have had their stock prices falling off the roof. This is caused by the fact that as a result of the decline in demand for oil, the demand for these carriers has dropped. A decline in the stock prices of the ships that specialize in carrying passengers and oil has led to huge losses for the owners and managers (Mohanty et al., 2021). However, through the government stimulus package, the ship owners and management can take the issued loans to maintain operations of the ships. Furthermore, they can be exempted from paying taxes and dues as part of the stimulus package.
Oil Prices
Oil is an important factor in the production of goods, therefore has an impact on the prices of commodities. Crude oil is shipped to different parts of the world using ships thus a change in prices of oil has a direct impact on ship finance. As the United States was planning to pass an economic stimulus package bill in December 2020, oil prices began to increase to reduce the economic impact of COVID-19 (Elgin, 2020). With the provision of stimulus checks, there is expected to be higher purchasing power from consumers which will translate into inflation. This is attributed to the fact that the stimulus package will increase the demand for goods including that of oil. This will in turn translate to an increase in shipment of oil to different locations. The increase in the cost of shipping oil will have a ripple effect on the goods and services that require oil such as transport services. This is a scenario that is expected to be replicated in other locations where governments are offering stimulus packages.
Oil prices will also affect ship finance because of the increase in the number of shipments of oil barrels because of the increase in the oil demand. The shipowners will be expected to invest in getting more resources into the business to cope up with the rising oil demand (Nanovsky, 2019). Furthermore, the cruise industry will also be affected as the increase in oil prices will lead to an increase in the cost of tickets. The owners of ships may be forced to run the cruise ships at a reduced profit margin over an increase in ticket prices. This is because there is little movement of people because of COVID-19 restrictions. However, the shipping companies will be expected to resume their journeys at a reduced capacity even if the oil prices are high. The important thing is that the prices will eventually reduce in the long run as the price of oil will reduce.
Currency Rates
As a result of the lockdown measures imposed by most governments, there has been a slowdown in the clearance of goods at most ports. As a result of the delay in clearance of goods from ports, most ship owners and those importing goods have undergone losses. This has an eventual effect on the trade balance between different countries. As a result of this reduction in trade between countries, the exchange rate is expected to be affected (Kroner et al., 2021). Most ships operate long routes which traverse various jurisdictions and regions. As a result, the ships will be forced to dock at different ports where the crew and those on board the ship will be expected to change their money to the local currencies. As governments implement economic stimulus packages, there will be an increase in cash flow. This might increase the purchasing power of consumers which will, in turn, lead to an increase in the number of goods imported. Many of these goods will be transported through ships which will, in turn, increase the operations of the vessels.
Treasury Bond Yields
Treasury bonds yield change prices over years because of differences in economic activities. As a result of the impact of the coronavirus pandemic, there has been a reduction in economic activities. However, with the implementation of stimulus packages, it is bound that the short-term treasury yields will decline while the long-term yields will increase. This has an important change in the shipping industry as it affects consumer purchasing power (Nicola et al., 2021). As short-term treasury bond yields decrease, there will be a reduction in the ability of the holders of these bonds to make purchases. If the holders of these bonds are ship owners, then their purchasing power will be reduced and as a result, their operations will be affected.
Crew Management
The United States and the United Kingdom are the main suppliers of crew members worldwide. After the COVID-19 pandemic, many crew members have been stranded all over the world. Not only are the crew members stranded but also the cruise ships have been stranded too. The shipping restrictions have made it hard for the crew members to get to their homes. The governments must make some special arrangements for the crew members to get to their home. The shipping industry has become shorthanded since they are unable to pay their crew members (Ivanov, 2021). With the help of massive stimulus packages that the governments issue, the shipping companies are equipped with enough crew members to work at the ports. Shipping finances from the government is significant in maintaining the right amount of labour force in the port.
Furthermore, the crew members are expected to enjoy the benefits that all other workers enjoy such as reduced tax. This will increase their relative income thereby increasing their productivity. The shipowners will in turn be safe from the need to increase the salaries and wages of the crew which would be costly. As a result of lifting the burden of increasing the salaries of the crew members, the shipowners will be able to provide the ship services at a lower cost. As a result, the business will be able to run profitably without having to deal with the issues of labour strikes by the crew members.
Supply Chains
The COVID-19 pandemic has led to a weak global supply chain thus causing a shortage in the critical medical equipment’s that are required in fighting the COVID-19 pandemic. A weak global supply chain is because of the lockdown and restrictions made to ensure the pandemic is not spreading. Countries that are hit by the pandemic are unable to provide adequate medical care and equipment such as protective masks, ventilators, and other protective equipment (Ivanov, 2021). In the United Kingdom, the shortage of protective equipment has several different causes such as the problems associated with the supply chain globally. However, there has been an increase in cargo ships than the cruise ships as more goods try to get into a different country. The massive stimulus package given to the shipping industries ensures that the supply chain is strengthened and there is no shortage of the required equipment’s to fight the pandemic.
Insurance
Most goods that are transported via ships are insured. However, insurance policies are limited by timelines that have been affected by the COVID-19 pandemic. For instance, because of lockdowns in different countries across the world, there has been a decline in the pace of clearance at most ports. As a result, these delays have resulted in the violation of various insurance policies for goods in most ships (Barua, 2020). Stakeholders in the shipping industry such as cargo owners, importers, exporters, insurers, and risk managers are supposed to closely monitor the shipments concerning delays incurred, demurrage charges, interruptions in transit of goods, and force majeure. The implication of delays in shipment includes additional charges, perishable goods spoiling, and effect on the general cargo throughput. One of the reasons for this is as a result of an increase in shipments and a reduction in workforce to help clear them. Through the economic stimulus packages, the ability of ports to clear goods is important in ensuring that the insurance policies of the ship and goods remain valid.
Legal Disputes
The COVID-19 pandemic has led to various legal disputes dilemmas in the shipping industry. The owner of the cargo must maintain a safe port in which cargo operations can be operated at ad discharged. The pandemic has led to some of the cargo ports being closed (Kroner, 2021). Once the cargo ports are closed, the cargo owners are forced to redirect the cargo to an alternative port. At times, this is impossible since there are no available ports that the cargos can be discharged to. When the vessel arrives at the port and finds that no cargo was shipped, leading to an increased cost of shipping.
The stimulus package might include waivers on fines and taxes which had affected goods at the port which had an impact on the ship and other stakeholders. This will go a long way in easing congestion at the ports and faster clearance. Furthermore, legal disputes between the shipment stakeholders and the governments will be easier resolved through the provisions of the stimulus plans which will most likely include cases with shippers (Ivanov, 2021). As a result, in case the massive government stimulus plan includes the management of legal disputes that can be avoided because of the resolution brought about by the stimulus plan. The government will be able to resolve issues such as increased custom prices. For instance, in countries where there is a limit on the age of second-hand cars that can be imported, there is a high likelihood that there will be those vehicles whose importation date will expire before clearance at the port, yet they were imported earlier. As a result, the stimulus package will consider such situations and avoid legal issues.
Conclusion
In conclusion, the implementation of the stimulus package by governments to combat COVID-19 induced recession has had an impact on the shipping industry. The economic stimulus package has been rolled out in different forms by different governments depending on their jurisdictions. However, the economic stimulus plan packages have had different effects based on the different themes discussed above. These impacts have been felt through stock prices, oil prices, changing currency rates, treasury bond yields, supply chain, insurance, crew management, and legal disputes. The stimulus package will have both positive and negative impacts on the ship finance industry.
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