Coronavirus’ Effects on Trade, Supply Chains, Shipping, and Travel

Feb 4, 2020 | Beyond the Headlines

By Sharon Lo, Managing Editor, DTJ & The Source

There has been a steady flow of headlines about the [novel] coronavirus since the respiratory illness was first identified in Wuhan, Hubei Province, China, in December 2019. According to recent figures, at least 427 people have died from the illness and more than 20,600 are infected. While the vast majority of cases are in China, 23 countries—including the United States—have confirmed cases.

But the impact of this outbreak has already gone beyond the human toll that most headlines address. Effects of the coronavirus are also being felt in global trade, supply chains, shipping, and travel.

The overall economic impact of the virus cannot yet be predicted, but one Chinese state media outlet and some economists have said that their country’s growth rate could drop two percentage points this quarter because of the outbreak. A decline on that scale could mean $62 billion in lost growth.

China’s economy currently accounts for 17 percent of global GDP. Instability in their economy would prove detrimental to other economies, but most especially to the intertwined economies of other Asian nations. And the instability appears to be starting with Chinese stocks plummeting this week.

Issues in the Chinese economy also bring into question the country’s ability to fulfill its obligations under the Phase One Trade Agreement it recently signed with the US. In the agreement, China is to increase its import of US goods by $200 billion over the next two years.

Supply Chains
Wuhan, where the outbreak originated, is one of China’s industrial hubs and is home to its steel industry. The city, along with other cities in China, is essentially on lockdown with factories and other public areas closed.

Portions of many supply chains originate or pass through Wuhan for manufacturing, assembly, or finishing. Those supply chains can expect wide-spread shortages or delays for materials sourced or manufactured there. The length of the lock-down in Wuhan is unknown and global supply chains for raw materials, parts, or finished goods may be at risk.

Disruptions to global supply chains will undoubtedly affect the freight industry. Rates for giant Capesize ships, typically used to carry raw materials such as iron ore, plunged 90 percent from a September peak to less than $4,000 a day based on an index that tracks their earnings and a wider Baltic Dry Index more than halved in January to hit the lowest since 2016. The plunge in shipping rates underscores just how much pull China has in global commodities markets, with the virus upending everything from oil futures to copper prices.

The shipping industry also needs to concern itself with the health and safety of its workers. Six seafarers aboard a French-operated container ship fell ill during a voyage from China to Egypt, raising concerns that they could be the first reported mariners to have contracted coronavirus.

Travel companies find themselves at the forefront of containment. While many airlines have temporarily suspended all flights to China due to the virus’ outbreak, those that are still flying to the country are adopting a series of measures to prevent the spread of the deadly disease, such as no longer offering blankets, pillows, and magazines to passengers.

The US government has also stepped in with its own preventative travel restrictions which include temporarily denying entry to foreign nationals who visited China in the 14-days before their arrival to the United States and quarantining US citizens who have been in China’s Hubei province in the two weeks before their return to the United States for a period of up to 14-days.

But it’s not just air travel—and not just travel in China—being affected. Uber froze the accounts of 240 users in Mexico as a precaution after flagging that two drivers made journeys with a passenger who was identified as being “a possible carrier of the coronavirus.”

Understandably, the virus’s effect on the travel industry is already being reflected in earnings, schedules, and share prices of multiple sectors in the industry—and from the looks of things, this is not likely to turn around anytime soon.

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