Coronavirus will depress logistics markets in the short-term

coronavirus depress logistics

Although the medical seriousness of so called ‘coronavirus’ is not clear, it will have significant implications for the logistics sector in the short-term. Whilst some doctors assert that both the threat to life and the infectiousness of the disease is far from catastrophic, the experience of severe acute respiratory syndrome (SARS) in 2003 (also a coronavirus) suggests that despite any objective assessment of the pathogen such crises develop a dynamic of their own. The reaction to the problem is often more serious than the problem itself.

This already appears to be the case. In China there have been extensive evacuations around the city of Wuhan and something akin to panic seems to be spreading despite the death toll being unknown. The Chinese authorities suggest that 100 people have died. 

Wuhan in Hubei province is a significant hub for road, air but especially rail and river transport. Its position on the Yangtze gives it an important role in handling cargoes from central China in and out of the ports of Shanghai. Removing it from China’s transport network may be difficult and disruptive but there are other options to move people and freight around China.

However, if the disease spreads to the giant conurbations on the coast then the problem will be of a greater order. Certainly, this will be the case if the reaction of the authorities is as extreme as that in Wuhan.

In regards to the logistics market, again taking the case of SARS, it would seem that the most significant direct effects will be felt on the air transport market and especially belly-freight services on passenger flights. Already there are press reports of a collapse in demand for domestic services in China. Presumably, freighter flights will be less affected. In other areas of transport, some barge and low-draft vessel traffic has been slowed into Wuhan’s river-port facilities but this does not appear to be severe yet.

The indirect effects are likely to be as important economically. Already the price of oil has fallen and the shares of major container shipping lines have been hit. The likelihood is that demand generally will drop in the short-term. The impact on the exposed sectors of shipping and airfreight is obvious. The question is how long will the impact be felt and how deep will any fall in demand and prices be.

Perhaps it ought to be noted that it appears that the virus may have mutated to affect humans due to the handling of food and wild animals in close proximity at a food market in Wuhan. This is not the first time that problems have arisen in the Chinese food supply chain. It highlights the importance of food logistics and possibly this might be justification for greater investment in sanitary regulation in the handling and storage of both meat and live animals at warehousing and retail locations.

Source: Transport Intelligence, January 28, 2020

Thomas Cullen 

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