Coronavirus disrupts freight, price of oil; U.S. impacts could be ‘substantial’

While the death toll and number of new cases related to the coronavirus continues to rise in China, the impact of the respiratory illness has expanded into the U.S. energy, agriculture, and transportation sectors.

More than 1,000 people have died as a result of the coronavirus that was first identified in December in Wuhan, the capital of China’s Hubei province. The virus outbreak has led to supply chain and travel disruptions throughout China that are projected to impact the price of oil and ocean freight to and from the United States.

The travel restrictions in response to the coronavirus and the related economic slowdown in China will reduce petroleum demand and keep crude oil prices under $60 per barrel through the first half of the year, despite existing disruptions to crude oil supply, said Linda Capuano, administrator for the U.S. Energy Information Administration (EIA). The EIA released Tuesday (Feb. 11) the Short-Term Energy Outlook for February, and noted changes in the forecast were a result of the coronavirus and its effects on oil consumption in China.

The EIA reduced its forecast for global oil consumption growth through 2020 to 1 million barrels per day. U.S. crude oil production growth also is expected to slow as production is expected to rise 8% to an average of 13.2 million barrels per day in 2020, from 2019. The production is expected to increase 3% to 13.6 million barrels per day in 2021, from 2020.

Members of the Agriculture Transportation Coalition, which includes U.S. exporters of agriculture and forest products, have been impacted as a result of the coronavirus, challenging exporters who ship items not requiring refrigeration and those that do, such as beef, pork and poultry, said Peter Friedmann, executive director for the Agriculture Transportation Coalition.

As China’s government has worked to contain the virus, the supply chain has been compromised, from the China marine terminals to the inland destination points, Friedmann said, noting the supply chain disruption has spanned the Pacific Ocean and affected U.S. marine terminals and inland. Friedmann said cargo that has been offloaded at China terminals has started to back up. Domestic freight routing has been hindered because of the measures to contain the spread of the virus. Also, the movement of people to and from work and trucking from place to place have been restricted. The limited capacity at the terminals cannot store all the containers coming off the ships, he said.

The Agriculture Transportation Coalition has been working with ocean carriers since the coronavirus started to spread as the organization had anticipated the supply chain would be slowed, Friedmann said. Protein exporters were told to be aware of the lack of refrigerated container capacity at China marine terminals. The plugs that supply electricity to the containers were all in use, he said. U.S. exporters were urged to confirm with ocean carriers before shipment that the container will be available to be delivered to the customer in China. The exporters should receive a commitment from the carrier that reefer plugs will be available at the destination port.

Less cargo has been shipped from China to the United States as production in China has slowed because factories have been shut down to contain the virus. The shutdowns have led to production declines in consumer goods, including apparel, footwear and electronics, and industrial products. The lower volumes of cargo and containers have led to fewer ocean shipments to the United States and an “emerging threat of a shortage of ocean carrier capacity to timely take our exports back to China on what would ordinarily be the ‘backhaul’ of a roundtrip ocean voyage,” Friedmann said.

The coalition has asked ocean carriers to not charge demurrage and detention, or penalty, charges for containers that are stuck on a China terminal.

“The ‘back up’ in China extends all the way to this side of the Pacific Ocean, our members, the U.S. agriculture and forest products exports, are finding cargo getting ‘stuck’ at inland origin points, at rail ramps, at truck yards, at refrigerated warehouses and at the marine terminals here at the U.S. ports,” he said. “Thus we are urging carriers to refrain from penalizing our exporters for such delays. This remains perhaps the highest immediate priority for the Agriculture Transportation Coalition as we seek to protect members from free time penalties which can amount to thousands and quickly to tens of thousands of dollars.”

About 40% of all shipments that entered the United States last month came from China, according to Freightwaves, and a recent report from the trade publication on the coronavirus showed 7% of vessel sailings from China to the West Coast were canceled as a result of the virus.

The impact of the virus on U.S. freight markets is expected to start showing in data in one to three weeks, the report shows. Along with the vessel sailings that were canceled because of the virus, 16% of vessel sailings destined for the West Coast were canceled because of the Chinese New Year. The coronavirus has removed about 300,000 to 350,000 twenty-foot equivalent units of demand from Chinese exports to the world. A twenty-foot equivalent unit refers to the volume of a 20-foot-long shipping container.

“Over the next three weeks, we expect truckload volumes outbound from Los Angeles and Ontario, California, to plummet due to both the coronavirus and the extended Chinese New Year,” the report shows. “Container spot rates have continued to slide since the outbreak began. We anticipate that container rates from China to the West Coast will rise as demand returns post-coronavirus outbreak.”

The effects of the coronavirus on the trucking industry or how it’s preparing for the virus have been focused on its impact on the global supply chain, the economy and freight demand, said Shannon Newton, president of the Arkansas Trucking Association.

“As trucking has seen from the trade war with China, even the slightest dip in imports from China can impact freight volumes,” Newton said. “With the virus still not contained and potential treatments or vaccines unknown, it is hard to predict the peak or ultimate impact on the world’s economy. But given that trucking is the primary mode of transportation for all consumer goods, and the majority of consumer goods are sourced at some point from China or other Asian countries, the impact, while temporary, is potentially substantial.”