2020 proved to be the most challenging year in more than a century for the global economy as well as global trade. The adverse impact of COVID-19 on global trade has endured since March 2020. Although gradual recovery is expected in 2021, the final impact is not yet certain as it will depend on the overall duration, severity, and progress of the pandemic in the months to come.
Global Trade: Most Challenging Year of the Century
COVID-19 let to both demand and supply disruptions (Baldwin and Toimura, 2020). On the supply side, disruptions have been mainly related to hindered production, increased transport costs and supply-chains contagion effects. Demand disruptions, on the other hand, have been mainly driven by decreased aggregate demand and delayed purchases and investments. These distractions have been leading to further disruptions in transportation and supply chains, shortages in raw materials, increased raw material and oil prices, port closures, blank sailings, delayed deliveries, capacity constraints as well as shortages in equipment, labor and working hours. The transportation, shipping and packaging industries, all had their share of the negative bearings of the COVID-19 crisis.
Shipping Industry: Chaos in Ports
The international shipping industry lies at the heart of global trade. According to Maritime Industry Foundation, shipping industry is responsible for the carriage of around 90% of total world trade.
The impact of COVID-19 on the shipping industry had been harsh. A recent article published in NY Times (03.06.2021) quoted “Around the planet, the pandemic has disrupted trade to an extraordinary degree, driving up the cost of shipping goods and adding a fresh challenge to the global economic recovery. The virus has thrown off the choreography of moving cargo from one continent to another…No one knows how long the upheaval will last, though some experts assume containers will remain scarce through the end of the year, as the factories that make them — nearly all of them in China — scramble to catch up with demand.”
The implications over the marine transportation facilities have been chaotic on a global scale. Ports have been closed due to quarantine periods, preemptive protocols such as social distancing in warehouses resulted in bottlenecks in freights, bans were introduced for marine vessels into certain countries due to which vessels had to stay on water without a destination port to go to, capacity was reduced, and prices surged. Tariffs increased significantly (more than 300% in some ports and trade) with congestion in the ports and lack of available containers at the right location. Most of the cargo backlogged at ports and travel restrictions and curfews led to a shortage of truck drivers to pick up and deliver the containers. All in all, it was a very chaotic year at ports. Container liners were able to manage to reduce their capacity as of the beginning of the pandemic by taking ships out of the loops “blank sailings”. (Hellenic Shipping News) Following the significant turmoil in the first half of 2020, volumes started to recover as of the second half of 2020, and, fortunately, the year ended better than expected. Although more recovery is foreseen in 2021, there is significant deviation between worst- and best-case scenarios of different research houses due to ongoing uncertainties. Hellenic Shipping News expects the shipping industry to benefit from world trade recovery in 2021, with average seaborne trade volumes expected to end above pre-pandemic levels. Although freight rates in container shipping are expected to ease over the course of the year, nominal rates are expected to remain high due to container shortage and reduced air freight capacity.
Packaging Industry and Dunnage Bags:
Tightening trade volumes and the chaos that stroke global shipping and transportation also had negative impact on packaging industry. Although we did not see a contraction in the sector, the sector grew with a decelerated rate than that was projected before the outbreak of COVID-19. While some research houses were forecasting an annual growth rate of about 4%, their forecasts were almost halved for the years 2020 and 2021 following the outbreak. On the other hand, other research houses came up with more optimistic scenarios such as Marketandmarket who has projected the global packaging market size during the COVID-19 pandemic to grow from USD 909.2 billion in 2019 to USD 1,012.6 billion by 2021, at a Compound Annual Growth Rate (CAGR) of 5.5% as the most likely scenario, with the best-case scenario reflecting 9.2% growth and the worst-case scenario at 2.2% growth. Most researchers believe that any negative impact will be limited to the short-term although there are still many uncertainties that might dampen the estimates.
While the disruption of the supply chain and transportation problems had been a drag for the packaging and dunnage bags industries, the rise in e-commerce coupled with higher sales in FMCG and pharmaceutical goods have been a positive impetus for higher demand in dunnage bags. The projected. recovery in the shipping industry is also expected to translate into higher demand for dunnage bags for overseas transportation in the near future. Despite the difficult market environment during the years of COVID-19 outbreak, many research houses kept their growth expectations intact at around 4 and 5% CAGR over the next 10 years.
The United States has been one of the fastest-growing packaging markets in North America and is expected to be one of the main drivers of higher demand in the dunnage bag industry. Companies across the United States have been heavily investing in flexible packaging (protective mailers, bubble packaging, paper fill, air pillows, dunnage bags, etc.) technology and those companies with superior product quality, high focus on innovation and strong commitment to outstanding service quality are expected to continue to grow regardless of the operating environment.
International Dunnage: Commitment to Offer the Best Irrespective of the Changing Market Conditions
As International Dunnage, since the beginning of the pandemic, we maintained a continuous state of operational readiness and worked across teams and time zones to ensure best product and service quality. Our two manufacturing plants, in Europe and N. America, as well as several warehouse locations across the globe enabled us to fulfill the requests of our customers in a more timely and effective manner than most of our competition. Against all odds, delivering the best service quality uninterruptedly has been our main priority. If we are not able to fulfill any order immediately, we have a commitment to substitute a higher-level product for the same price of the original request.