ACF WEEKLY CORONAVIRUS UPDATE

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China – landslide updates:

Our sources from China have provided us with the following updates

  • Currently, the increase in the number of confirmed infected patients in China is less than 100 cases per day (95% new cases are in Wuhan) with many provinces showing zero increase. Over half of the provinces have dropped their emergency management level to Level 3.
  • Details from Chinese Customs confirmed Exports from China for the first two months(Jan & Feb) reduced 17.2% to USD$292.45 billion.
  • According to local newspapers major East production provinces and South production, provinces are back to normal work. News sources also advise that currently major companies and manufacturers have a back to work rate at 90%, however, a smaller business is not at that same level
  • According to a Chinese government announcement (March 3, 2020), Prime Minister Mr Keqiang Li has announced all the ports need to reduce their charges to assist with recovery.
  • In some key ports, such as Shanghai, Guangzhou, Beijing etc, the import and export declaration process has been simplified to facility cargo movement and recovery.

It is apparent the Chinese government is continuing to stimulate recovery across many facets of the manufacturing and trading communities to ensure a full return to economic stability as quickly as possible.

Business Continuity Plans (BCP):

In recent days we have had calls from customers as regards BCPs for both Government agencies and Terminals should the coronavirus get to a stage where a full shutdown of these services may be required. We are on contact with major industry organisations and our initial finds are below.

Government Agencies:

Both the Australian Border Force (ABF) and Department of Agriculture, Water and the Environment (AWE) currently have a geographically dispersed workforce so any major shutdown in one area could be offset by processing in another.

Terminals:

As we have seen in the past terminals have, where possible, sub-contracted vessels to another terminal operator. Whilst we have no official word as yet from terminal owners we would expect similar arrangements could be put in place should coronavirus impact a terminal to a degree of full shutdown.

Economic Update:

Markets crashed overnight, triggered by a collapse in oil prices and an explosion of coronavirus cases, halting US share market trade briefly in early trade. The news over the weekend was that Italy was taking emergency action and shutting down much of Northern Italy due to the explosion in ‘coronavirus’ infections. European markets shutting down will kill economic activity and this was not assisted by the disintegration of oil prices and bond yields. Saudi Arabia has reversed previous attempts to support oil prices, in an apparent attack on Russia and ‘OPEC +’, vowing to increase production and cut prices. This released panic across global markets, as energy prices collapsed and the associated companies share prices went into freefall. Oil fell up to 30%, while US Bond Yields collapsed, hitting banking stocks hard.

This market meltdown continues and actually has gained momentum. The freefall in Bond yields drove the US Dollar lower and the safe haven of the Yen was a major beneficiary. The Yen rallied to 102.00, while the EUR jumped to 1.1450, a surprising recipient of flows. Central banks have been operating in this world of extreme QE and record low-interest rates, with the question being ‘how could Central Banks react to another major market shock’, given the high debt and weak monetary positions? The ECB and Bank of Japan are already operating negative interest rates and it looks like other Central banks will soon follow. Then what?

The collapse in oil prices has hit the energy sector hard, including oil producers and the companies that produce and supply oil. On the flip side, most countries are net importers of oil and thus should offer sharp improvement in terms-of-trade and a massive stimulus for the motorist! The consumer will benefit from the cash injection, aided also by record-low interest rates, allowing massive cash stimulus.

The shutdown of industrial Northern Italy is a shock to European markets, as the impact of the coronavirus spreads, hitting the existing supply chain. This does not assist the trade-exposed commodity currencies, but the collapse in US Bond yields and the US Dollar has allowed the currencies to regain ground (despite a ‘flash-crash in early currency trade). The AUD regained 0.6600, while the NZD rallied strongly to 0.6350. This relative strength is a reflection of market volatility and the impact on the reserve currency, rather than any positive reason for a rally. It is hard to see the NZD and AUD as safe haven in a world of turmoil. They remain extremely vulnerable.

The Oil Price bomb, combined with fears over the impact of the coronavirus, are wreaking havoc on markets. The huge falls in stocks and asset prices are a shock but the sun rises every morning.

Shipping Updates:

A number of the major lines/consortia and their views are summarised below

  • Have been seeing improvement in bookings/vessel loads and would expect to see a return to full sailing schedules by end of March / early April
  • trucking capacity in the Northern and Southern ports back at 100% so freight is moving
  • expect full sailing schedules by week 12/13 and loads at 90-95% capacity
  • vessels that have been offline having been used as storage depots for “reefers” due to the reefer plug shortage at Chinese ports – these will now slowly start to be discharged at their destination ports
  • due to lack of container movements during the blank sailing period, we could see a shortage of equipment at origin ports around the world. This may impact exports, especially in the fresh produce field.
  • strong northbound trade – southbound starting to improve

Media:

The ABC in their “The Business” broadcast on Monday, March 9, addressed the Shipping Slowdown with interviews of industry sources.

ACF will continue to monitor issues surrounding the coronavirus and keep customers updated as necessary.

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To stay abreast of all developments and general information concerning the Novel Coronavirus we suggest clients maintain a watching brief on the Department of Health website by copying the below address into your website. https://www.health.gov.au/health-topics/novel-coronavirus-2019-ncov