The coronavirus crisis is worsening by the day. As of Friday, about 9,800 people were confirmed to be infected and over 200 had died.
Is there an effect on the trans-Pacific trade between China and the U.S.? The answer is: if there is, it’s not yet showing up in the data.
The timing of the outbreak is making it particularly difficult to discern the effects, because it coincided with Chinese New Year. That work break is being extended as a result of the coronavirus.
As Paul Bingham, director of transportation consulting at IHS Markit (NYSE: INFO), said during an interview with FreightWaves on Tuesday, “The timing will make it statistically hard to say ‘this is when things stopped in China’ … so you need to be really careful about over-ascribing coronavirus to a pause in production right now.”
One proxy for potential demand consequences is the cost to ship a forty-foot-equivalent unit (FEU) container load from China to the North American West Coast. This price is tracked daily by the Freightos Baltic Index (SONAR: FBXD.CNAW).
That index level has remained flat at around $1,520 per FEU for the past week. One could argue that this means the coronavirus is having an effect by extending the rate decline caused by Chinese New Year, or one could say that no effect is evident because the price isn’t changing.
Some also argue that the flatness of rates is actually a positive sign. Deutsche Bank transportation analyst Amit Mehrotra said in a client note, “Over the last three years, freight rates out of China averaged a 3% week-on-week decline the first week of the Lunar New Year on the back of softer activity levels.” Current rates “show resilience despite headwinds from the coronavirus outbreak and Lunar New Year.”
In the company’s weekly note, issued Tuesday, Freightos Chief Marketing Officer Eytan Buchman commented, “An extended shutdown [due to coronavirus] could impact U.S. importers in several ways.
“Should the shutdown get extended by a week, the [Chinese New Year] backlog would be doubled, pushing freight rates up and likely leading to delays for many shippers. Limited trucking capacity could also cause some cancellations. This backlog could also motivate some time-sensitive importers to shift modes from ocean to air,” Buchman said.
