FreightWavesTV: Coronavirus Special Report

The World Health Organization on Friday raised its assessment of the global coronavirus risk from “high” to “very high,” the most serious assessment in its new four-stage alert system. “This is a Class 1 event and is unprecedented in modern history,” FreightWaves CEO Craig Fuller said of the global economic and supply chain effects of the coronavirus outbreak. “We haven’t seen anything quite like this maybe ever.”

A little more than 100 years ago, the 1918 influenza pandemic (January 1918–December 1920) – known as the Spanish flu – was a deadly influenza pandemic. It was the first of the two pandemics involving H1N1 influenza virus, with the second being the swine flu in 2009. The Spanish flu infected 500 million people around the world, or about 27% of the global population at that time. At a time when global travel was solely by ship between continents, the Spanish flu still infected people on isolated Pacific islands and in the Arctic. Health officials estimate the death toll over three years to have been 40 million to 50 million, and possibly as high as 100 million, making it one of the deadliest epidemics in human history. 

“Today, we truly do have global travel – primarily by air, but also by ship – but also by high-speed rail and hundreds of millions of cars on every continent,” Fuller said. “Moreover, we live in a time of interconnected, global commerce, in which the impact of the coronavirus in China is impacting global stock markets and global supply chains. And as people have become infected in at least 40 other nations, panic is also spreading.” 

Among the impacts to date: the Dow Jones Industrial Average is suffering its fastest decline in history, and maritime shipping capacity has dropped off significantly. Airlines have cut almost all service in and out of China, and that is now spreading to other nations in Asia. 

FreightWaves is tracking what is happening in the major lanes based on the daily volumes out of the Port of Los Angeles.

But for all the ships that have ceased operations, so far the trucking market hasn’t taken a similar hit. Nonetheless, while there was a lot of optimism for a rebound in trucking volumes in the second half of 2020, it appears clear that at best it will occur much slower than anticipated.

“It’s rough,” said FreightWaves maritime specialist Henry Byers. “As the Chinese New Year holiday ended and volumes were expected to pick back up, the factories remained closed. These goods are now piling up at origin in China. Just like the airlines that stopped quickly, the crews at the ports have brought operations to an almost complete halt.”

Byers estimates that as much as $500 billion of travel spending will be lost worldwide. “Over 200,000 passengers were visiting Hong Kong a day. Now there are about 3,000,” he said.

Are we seeing an uptick in the flow of goods yet? The Chinese government is attempting to get factories and supply chains back on track, but so far it’s hard to know what sources to trust from within China as to what is taking place there.

“Intermodal traffic was weak already,” said FreightWaves intermodal specialist Mike Baudendistel. “Most of the railroads in particular are concerned with international trade. SONAR data shows volumes falling off a cliff, although it’s hard to completely tell what to attribute that to. If this continues, it  will shake consumer confidence in the U.S.. That means that trucking could tighten later this year, although that could change now.”

What will happen in the overall intermodal market? Baudendistel sees the trucking market staying very competitive with intermodal. The Class I railroads remain unwilling to work with customers on negotiating rates.

Chief strategy officer JT Engstrom believes that the truckload carrier market is getting nervous about what’s happening in the stock market. “The fundamentals anticipate a lack of volumes coming from China. Most carriers aren’t prepared for a black swan event. I don’t think anyone really knows what will happen now in 2020,” Engstrom said. “We have to hope that a vaccine and/or cure for the coronavirus is developed soon…”

Are we going to see a recession in the U.S. or is this short-term? As soon as the correction starts eroding consumer confidence, it could very well lead to a recession.

What should an asset-based carrier be thinking about right now?

“Start looking at your historical rate utilization and think hard about your capital purchases this year, and possibly take some power units offline to mitigate risks,” Engstrom said.

“We’re seeing a significant sell-off in financial markets in the U.S. and around the world,” said FreightWaves financial analyst Seth Holm. “The potential for a recession is growing rapidly. Stocks are getting hit the worst.” 

Holm added, “In terms of e-commerce, we may see a temporary effect of increased engagement for the second and third quarter.”

He sees the run rate of West Coast imports going down between 25% and 50%. “A slight imbalance in the inflow and outflow could be dramatic.”

FreightWaves economist Anthony Smith sees the coronavirus really putting a damper on consumer spending, and trucking industry specialist Zach Strickland believes it will have long-term impacts.

The most challenging aspect of the still-developing situation is that it has no historical precedent and corresponding data, so predicting what comes next is virtually impossible.

At this point, it seems, the only certain thing is uncertainty.