As the coronavirus spreads to more countries, the likelihood of longer lasting economic and financial effects has increased, putting the North American transportation sector at risk, according to a note published by Moody’s Investors Service.
Transportation is among the seven industries most vulnerable to disruptions resulting from the COVID-19 pandemic, Moody’s analysts said, categorizing the sector under “high exposure.”
Supply chain disruptions and economic slowdowns will lower freight demand and, therefore, hurt trucking carriers and intermodal business, analysts wrote.
The analysts said the viral outbreak will also affect parcel delivery, although UPS and FedEx “have not seen significant impact,” in part due to offsets with increased demand and prices in their airfreight segments.
This heat map is based on a bottom-up analysis of individual issuers’ COVID-19 exposure, overlaid with qualitative considerations for the sectors believed to be most exposed to the outbreaks in the highly affected regions. (Moody’s Investors Service)
Lower container volumes would further weigh on the intermodal business of North American railroads that have to already contend with heightened competition from truck carriers, according to the report. “Although a more widespread and protracted outbreak could have a more pronounced effect on rail volumes, historically the sector has a demonstrated ability to adapt its cost base fairly swiftly to weakening transportation demand. However, the extent to which railroads can adapt to today’s much leaner rail operations after implementing precision scheduled railroading has not yet fully been tested.”
Cancellations of sailings by ocean carriers after the Lunar New Year holiday break indicate that Chinese imports and exports decreased materially compared with last year, in excess of what is attributable to normal capacity reductions in connection with the holiday.
Ocean carriers canceled 105 sailings on the routes from Asia to North America and Europe in February alone, according to maritime research provider Drewry. Lower container vessel exports from China are affecting container volumes at ports along the North American West Coast, including the Port of Vancouver.
Meanwhile, container shipping company A.P. Moller-Maersk said that the company’s guidance for 2020 is subject to significant uncertainties because of the outbreak, with challenges continuing in March after a very weak February.
Moody’s also indicated that intermodal truck carriers are likely to have greater near-term exposure to the coronavirus outbreak than other trucking companies. “Lower container volumes from China not only affect the freight railroads, but also the intermodal carriers that jointly offer intermodal transportation services to shippers.”