Commentary: Will coronavirus impact trade flows long-term?

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates. 

BREAKING NEWS UPDATE: According to MarineTraffic AIS data, the median time at anchorage at Chinese ports in the first week of February is 1.4 days. “The data now shows a sharp decline in port traffic at Wuhan in the first six weeks of 2020 when compared to the same period last year,” explained Georgios Hatzimanolis of MarineTraffic. “In the last seven days, the port saw just five arrivals and seven departures (all vessel types), compared to 72 arrivals and 47 departures in the same week last year. Chinese New Year always sees a slow down but looking at the year-on-year data this drop is considerable.”

In times of uncertainty and fear, there is one flame of truth that is often overlooked. That is the flow of trade. The movement of containers, cargo and energy along the vast ocean highways is the ultimate indicator of trade truth, and the best diagnostic tool of a country’s economic health. The flow of trade is now showing how special pathogens like the coronavirus will impact both the maritime and intermodal sectors.

The flow of trade is simple supply and demand. Less trade moving means less volumes being transported. That translates into money. The reported slowing of turnaround times at the Chinese ports coupled with the increase in blank or void sailings as a result of the coronavirus, point to a decrease in the flow of trade. Ocean containers from Wuhan, China to the United States represent $15 million in merchandise weekly. A total of 37,000 containers valued at $3.5 billion is traded weekly between the U.S. and China.

To put this possible impact into perspective, we need to know historically how much trade flows into the U.S. ports after the Chinese New Year (CNY). Collectively, the Port of Long Beach and Port of Los Angeles receive the largest amount of exports from China. “Typically, we see volumes drop 5% from one month to the next during the holiday break,” explained Noel Hacegaba, deputy executive director at the Port of Long Beach. “We normally see a recovery in cargo volumes in the weeks that follow. If the coronavirus keeps factories in China closed, the recovery in cargo could be delayed.”

 The delay compounds the existing problem that U.S. ports have – a continued decrease in Chinese exports because of the trade war. Phase One may have been signed, but given the magnitude of the coronavirus, the “natural disaster” clause in that deal could be enacted. In order for this to happen China would have to “consult” with the United States. If agreed to, China would have some wiggle room in reaching its import targets. Also do not forget the $350 billion in tariffs that are still levied on Chinese products entering the United States. The clause and tariffs would have an impact on intermodal volumes.

Before the trade war, the Port of Los Angeles and Port of Long Beach traditionally saw a bump in volumes ahead of the Chinese New Year. This year there was no pre-holiday bump. That translated into less cargo moved through the intermodal system.

Any post-holiday “bump” this year however will be delayed but is anticipated to be larger. “If U.S. consumer demand for Chinese goods remains the same, cargo volumes will simply be deferred,” said Hacegaba. “However, some goods whose value is time-sensitive – such as seasonal goods – could be impacted.” 

Port of Long Beach and Port of Los Angeles: volume post-Chinese New Year (month-to-month % change) – Source: Port of Long Beach, IHS Markit

  • 2017 (CNY = 01/28/2017): 15.15%
  • 2018 (CNY = 02/16/2018): 14.62%
  • 2019 (CNY = 02/05/2019): 13.36%

Hacegaba continued, “We estimate that for each additional week that factories remain closed beyond the traditional holiday break, we could see our cargo volumes decline by 1% of our annual throughput. To put that in perspective, 1% of our 2019 China cargo volumes is approximately 76,000 twenty-foot equivalent units (TEU). In the worst-case scenario that all cargo from China suddenly stops, we are talking about an economic impact of $1 billion per day. This would represent the worst-case scenario because it assumes that all services calling on our Port from China would be suspended.”

Deleting 1% of 2019 cargo volumes from the Port of Los Angeles equates to 93,000 TEU. In 2019, total Chinese goods arriving at the Port of Los Angeles were valued at $300 billion.

(Photo credit: Shutterstock)

Hacegaba cautioned while the port’s management do not expect the worst-case scenario to play out, they continue to monitor developments and remain in close contact with their customers and supply chain partners.

U.S. ports can plan for anticipated volumes of Chinese exports based on the incoming port calls. So far, carriers Hapag Lloyd, CMA CGM and Maersk have announced blank sailings because of the hit in demand as a result of the coronavirus. This decrease in demand can easily be tracked by the Freightos Baltic Index.

So, when will the U.S. ports and intermodal system begin to see the trickle-down impact? Port of Long Beach Director Mario Cordero said his estimate is the later part of February and early March. “Before the coronavirus we were hoping to see some normal balance post-Lunar New Year,” explained Cordero. “Now we won’t. The coronavirus will have an impact on all facets of the supply chain. Everyone depends on point of origin. This virus has closed manufacturing plants, and this will create a domino effect.”

Port of Long Beach (Photo credit: Jim Allen/FreightWaves)

At the Port of Long Beach, 25% of all containers move by on-dock rail. The containers leave the port on a train. Any slow-down in cargo would affect all modes of transportation across the entire supply chain. 

“The overall impact of the coronavirus could be catastrophic on the heels of last year’s more modest year due to the trade war with China,” cautioned Weston LaBar, CEO of the Harbor Trucking Association. “U.S. exports out of the Port of Los Angeles have been down for 14 consecutive months because of the trade war. West Coast ports have also seen fewer Chinese imports. The coronavirus now just adds to the uncertainty of volumes.”

The closing of the manufacturing plants in mainland China is also impacting some manufacturing plants in neighboring countries that are tied to China.

“Thread, labels and boxes are items that are ordered on an ‘as needed basis’,” explained Rick Helfenbein, former CEO of the American Apparel & Footwear Association and now an independent consultant. “Apparel makers may have the raw materials to make their items, but they might run out of the products needed to put their items together or ship them. You also have managers from China not able to travel to plants outside of their country. This is more than a Chinese manufacturing problem.”

This can add to the further slowing down of product movement.

“Almost on cue, the coronavirus is dampening a fragile positive outlook,” explained Jeff Tucker,  CEO of Tucker Company Worldwide. “If the virus, or any other significant headwinds hit trucking for much longer, I believe we will see a culling of the nation’s fleet. Carriers and drivers will be forced to leave the industry. Market forces don’t spare anyone, and don’t care how large your top line is. Everyone is at some risk when the market decides it will turn down.”

Tucker cautioned those companies and owner-operators with heavy spot market exposure would be impacted first. 

Cordero warned while the ports and intermodal system have been dealing with trade uncertainty for years, the coronavirus has brought unpredictability to a whole new level. “This now escalates the uncertainty to chaos when it comes to the supply chain.”