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Coronavirus will significantly impact US container imports in March

Wednesday, 26 February 2020 | 12:00

Container imports into the 10 largest U.S. ports dropped 4.1% in January, a reprieve from December's 12.5% decline and November's 6.5% decline. These recent downturns are driven by China tariffs.

Vagaries related to the Chinese New Year holiday make single-month comparisons in these early months less meaningful. However, broader actual measures point to a consistent downward trend. The six-month trailing numbers are down for the fifth straight month — to a 4.6% decline — and the 12-month trailing numbers are down for the ninth straight month, to a 1.8% decline.

With tariffs still in place, I had anticipated that the actual downward trend would continue as my forecast called for the first nine months of 2020 circling around a 10% actual decline, similar to the fourth-quarter experience.

The reprieve in January will be short-lived, but not just because of tariffs. A new negative catalyst in the form of the coronavirus originating in Wuhan, China, is now impacting supply chains. After the virus first became a news story in mid-January, the World Health Organization declared it a global health emergency on Jan. 30.

The spread of the coronavirus and its ramifications have grown exponentially. U.S. inbound loads weren't affected in January and the impact in February will be moderate. But the coronavirus impact on March will be significant.

The coronavirus impact first resulted in at least a one-week holiday extension that kept factories throughout China closed. Reports point to extensive quarantines and reduced activity, even after the holiday ended. For instance, one report claimed only 50% of stevedores are now on duty in Shanghai, the world's largest container port. Earlier this week, a 23,000 twenty-foot equivalent unit (TEU) ship reportedly departed China en route to North Europe with only 2,000 TEUs in loaded containers. Industry sources have cited numerous canceled sailings despite what is normally a busy post-holiday period.

The magnitude of declines we'll see over the next few months will have broad flow-through effects on many aspects of the U.S. economy. The coronavirus could make some of those declines unprecedented, but they should be temporary when that situation abates. It would, however, be a mistake to ascribe the entire container volume declines to the coronavirus as most of the China tariffs remain in place.

In January, East and Gulf Coast port volume declined 3% versus a 6.1% decrease in December, while West Coast ports decreased 5.1% versus a 17.2% decrease in December. In addition to the tariff effect, the structural shift away from the West Coast due to the mid-2016 expansion of the Panama Canal allowing more economical mostly water service will continue.

East and Gulf Coast ports constituted 46.8% of January's top 10 port volumes, compared to 43.3% in 2015, the last full year before the expanded Panama Canal went into operation. The canal expansion energized a transition that has been unfolding for a while — in 1995, East and Gulf Coast ports were 37.3% of the top 10 ports' volume. Note that when all smaller ports are included, the coastal split is about 50-50. The population dispersion in the continental United States has 75.7% of people closer to the East and Gulf coasts than the West Coast.

Ports with the strongest January performance were Houston, up 10.2%; Oakland, California, up 7.3%; and Charleston, South Carolina, up 2.9%. The weakest performance in January came at Seattle/Tacoma, down 20%; Savannah, Georgia, down 9.9%; and Long Beach, California, down 4.3%.

The table below shows all of the 10 ports ranked by imported container volume in January. Volume for the three months ending Jan. 31 is shown with year-over-year percentage changes for that period as well as the last 12 months. January data for New York is estimated at the percentage change at the other East Coast ports as its data isn't expected for weeks. Seattle/Tacoma volume is combined and not separately disclosed, but historical data confirms that each is among the top 10 ports.

For the three months ending Jan. 31, East and Gulf Coast ports declined 3.3% compared to an 11.4% decline at West Coast ports. That spread is narrower than the last 12 months, when East and Gulf Coast ports grew 3.1% and West Coast ports declined 5.8%. The best performers over the last three months were Houston, up 3.2%, and Charleston, down 2.4%, with the worst performers Seattle/Tacoma, down 20.9%, and Long Beach, down 8.6%.

Container exports are less relevant and typically backhaul lanes of less valuable cargo. In January, total export volume was 52% of import volume. While outbound loads grew 2.9% in January, all of that was driven by a 35% surge in Houston's presumably petrochemical-related loads. Houston now is the only port where exports exceed imports (a 113% ratio in January). At the other end of that imbalance spectrum is Long Beach, with a 35% ratio in January.

The macro story in 2020 will be driven by the continuing effect of the China tariffs, which now will be exacerbated by the impact of the coronavirus. The latter will make achievement by China of some of its recent commitments more challenging, and that itself could rekindle trade tensions that were put on hold with the recent Phase One truce. Our tariff initiatives have put a crowbar into the spokes of what was basically a free trade world, and we have yet to feel the full ramifications of this.

Unfortunately, if and when the tariffs go away, it is unlikely we will see a bounce back to pre-tariff trade levels for the United States. When obstructed, trade flows change and new networks and patterns are developed. They won't automatically snap back when the obstruction goes away. One reason for this is that even after they go away, some companies will remember the unprecedented whipsaw implementation of those prior tariffs and want to hedge their supply chain vulnerability.

The injection of uncertainty in terms of what may happen in the future may be the most pernicious long-term effect to the United States of the ill-conceived tariff initiative.
Source: Freight Waves

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