Global shipping sector-related ETFs are sinking as many anticipate a slowdown in China with the deadly coronavirus outbreak stalling the second largest economy in the world.
Year-to-date, the Invesco Shipping ETF (NYSEArca: SEA) plunged 17.8% and Breakwave Dry Bulk Shipping ETF (NYSEArca: BDRY) plummeted 39.2%.
SEA tries to reflect the performance of the Dow Jones Global Shipping Index, which measures the performance of high dividend-paying companies in the global shipping industry. BDRY tries to provide exposure to the daily changes in the price of dry bulk fright futures by tracking three-month strip of the nearest calendar quarter of futures contracts on specified indexes that measure rates for shipping dry bulk freight.
The shipping ETFs have retreated as transit rates fell to record lows with ships from oil tankers to container lines being turned away from ports. The shipping segment has suffered as factories were shutdown across China, the world’s largest consumer of commodities, and travel restrictions were put in place to control the spread of the coronavirus outbreak, the Financial Times reports.
The sudden fallout has been so widespread that the Capesize Index, which tracks freight costs for the largest carriers of dry bulk commodities such as iron ore, coal and grain, fell into negative territory for the first time since its creation in 1999, revealing that companies are shipping at a loss on certain trade routes.
Market watchers warned that the diminished demand for transported goods will continue to weigh on the shipping industry for months ahead.
“It’s a mess really,” Eirik Haavaldsen, head of research at Pareto Securities, told FT. “China is so important for everything shipping-related.”
Reflecting the sudden drop in activity, capacity utilization at major Chinese ports plummeted 20% to 50% lower than normal, and more than a third of ports said storage facilities were over 90% full.
Looking ahead, an official at China Merchants Port calculated that the coronavirus epidemic could cut annual revenue by 10% to 25% if it comes under control by the end of March, and the hit would be even worse if it lasts longer.
“Coronavirus is having a large disruptive effect on the marketplace and our business,” Brian Gallagher, head of investor relations at Euronav, one of the world’s largest tanker companies, told FT.
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