At the very end of 2019, Chinese authorities alerted the World Health Organization of a new virus causing flu-like symptoms in the city of Wuhan. Over the course of the following weeks, the WHO ruled out other viruses such as SARS or MERS – it became clear this was a novel virus that has never been seen before. By January 7, the virus was identified as Coronavirus – 2019n-CoV. As the month of January dragged on, the virus spread – first across China, then the rest of the world.
While it has taken some time for the economic impacts to be truly felt, they are now quite apparent. Over the last month, the Dow Jones Industrial Index has been down over 10%, with an extremely high level of volatility. The repercussions for global trade, and shipping in particular, have also been significant.
Shipping Impact from COVID-19
Though the impact on supply chains was not immediately felt, their repercussions are now becoming more apparent. According to Harvard Business Review:
Supply lead times will also have an impact. Shipping by sea to either the U.S. or Europe takes, on average, 30 days. This implies that if Chinese plants stopped manufacturing prior to the beginning of the Chinese holiday on January 25, the last of their shipments will be arriving in the last week of February.
All this suggests that there will be a spike in the temporary closures of assembly and manufacturing facilities in mid-March.
And we are already seeing this play out.
In the first quarter of 2020, containership operators have already canceled 60+ trans-pacific sailings to the ports of LA and Long Beach. As worries about the virus continue to grow, and as it spreads beyond Asia, it’s likely the global trade will be impacted even further.
In addition, we’re seeing an increase in transportation costs for US exporters in China due to congestion at Chinese ports.
Looking at Past Outbreaks
The outbreak of Coronavirus is not without precedent. We’ve seen a slew of viral pandemics over the last century, some more devastating than others, but all had global economic impacts.
Starting with the AIDS epidemic in the 80s, we can see the varied impacts each of these events had on markets. The two most recent and impactful epidemics are SARS and Swine Flu. While these viruses had significantly higher mortality rates than what we are seeing in in the current epidemic, they were not nearly as widespread in such a short period of time:
It’s highly likely that the economic impacts of COVID-19 will be more far-reaching than other outbreaks, depending on how long the outbreak lasts.
There are a variety of ways that a continued pandemic will impact supply chains and shipping. According to Gartner, these include:
As it stands now, the uncertainty of what happens next seems to be the biggest driver of market volatility. It is extremely likely that ports will continue to see lower volume and, depending on how China contains the spread, output from Asia could be reduced considerably.