Navigating the waves : the global pandemic's impact on container shipping and freight rates across different policy scenarios

Abstract

The COVID-19 pandemic has reverberated across global industries, including the international container shipping industry, where freight rates have become highly volatile. However, shipping lines appeared to thrive, particularly during the pandemic's initial 2 years. In this paper, we focus on the effects of the pandemic and the governments' related policies on the container shipping industry. The differential game models are developed to analyze the dynamics of the international container shipping market during the global pandemic. By utilizing a modified susceptible–infected–recovered (SIR) equation, we examine the pandemic's impact on shipping activities. Additionally, we compare the effects of two government policy groups in response to global shocks: movement restriction policies and infection-targeted policies. Our findings reveal that the pandemic has varying effects on the container shipping market at different stages. Initially, it disrupts shipping supply, and later, it suppresses shipping demand. This asynchronous impact on demand and supply leads to fluctuating freight rates and profits for shipping lines throughout different phases of the pandemic. Surprisingly, the alliance strategy adopted by shipping lines does not significantly enhance their profits during the pandemic's early stage, thus disassociating it from the surge in freight rates observed during 2020–2021. Our results also indicate that movement restriction policies not only result in increased shipping outputs but also lead to a higher infected population compared to infection-targeted policies. We calibrate our model using real data and further extend it to incorporate various forms of modified SIR equations through numerical experiments. Our analysis reveals that factors such as the pandemic's impact on shipping demand, recovery rate, and the influence of shipping activities on infection growth rate negatively affect freight rates, outputs, and profits of shipping lines, as well as the infected population and societal welfare. Conversely, positive outcomes are associated with the pandemic's effect on shipping supply, infection rate, and the delay of the pandemic's impact on shipping demand. Interestingly, our findings indicate that vaccination rates exhibit a dual effect during the pandemic. Initially, they adversely affect outcomes, but as time progresses, their impact becomes beneficial. Using the pandemic, shipping, policy, and macroeconomic data from January 1, 2020, to December 31, 2022, we empirically verify our main theoretical conclusions.