February 14, 2020

Navigating the Coronavirus

Jonas Crews and Dave Shideler

How a Chinese economic slowdown could impact a vulnerable Heartland trucking industry

The coronavirus (officially named COVID-19) started in the Chinese heartland, and has now spread to our Heartland. At the time of writing, there are four cases of the virus here – two in Chicago, one in San Antonio, and one in Madison, Wisconsin.1 And the health risks aren’t the only risks for the Heartland. Chinese factory and port closings will impede Heartland consumption until goods shipments from China return to normal levels. The reduced shipments from China will also slow production for Heartland manufacturers that use Chinese parts.

While the types of products impacted will be broad, most will have something in common: they are transported across the U.S. by truck drivers. And therein lies a less obvious economic concern. In 2015, NPR’s Planet Money surprised many Americans with a map showing that the most common job in 29 states is truck driver.2 Of those 29 states, 18 are among the 20 states we at Heartland Forward define as the Heartland.3 Additionally, the Heartland was home to some of the largest non-courier trucking companies, by revenue, in 2019. In particular, two of the top three trucking companies for less-than-truckload shipping, shipping where multiple clients share the space of a truckload and drivers make multiple deliveries,4 and three of the top five trucking companies for dedicated truckload shipping, shipping where a single client uses all truckload space and only one delivery is made, are headquartered in the Heartland.5

So how much of an impact could the coronavirus have on Heartland truck drivers? Given that the timing of the outbreak coincides with the Chinese New Year holiday, we can use information on the impacts of the Chinese New Year to provide insight. Each year, Chinese businesses close for up to two weeks to celebrate the holiday, resulting in temporary declines in U.S. imports and the trucking industry. Freight industry group FreightWaves notes that in 2019 trucks leaving Los Angeles, where much of the U.S.’s imports from China arrive via the area’s two major ports, declined 20 percent following the Chinese New Year. Trucking activity remained at this depressed level for a few weeks before recovering.6 Los Angeles may seem like a long way from the Heartland, but the Heartland will be the destination for many of the products that arrive in Los Angeles ports. Since the Chinese government’s initial responses to the outbreak were to extend the official Chinese New Year holiday a few days and restrict holiday travel, in the hopes of reducing the virus’ spread,7 FreightWaves points out that we can think of the initial impact of the coronavirus outbreak as an effective extension of the usual holiday trucking industry lull.8

To explicitly consider the impact of Chinese New Year on trucking activity beyond the Los Angeles ports, we can analyze monthly data on overall U.S. imports from China. The figure below plots U.S. imports from China alongside U.S. imports from the rest of the world from 2012 through 2019. Not surprisingly, winter and the end of the Western holiday season result in U.S. imports bottoming out in the first quarter of each year. However, there is a subtle difference in the timing of the rebound for imports from the rest of the world and for imports from China. Imports from the rest of the world begin to pick up in March, with an average increase from February to March of 15.6 percent during the 2012-2019 period. Imports from China tend to pick up later, with an average February-to-March increase of only 1.28 percent. This difference could be for a few reasons, such as different types of goods being imported. It could also, at least partially, be the result of the Chinese New Year. Given that Chinese New Year tends to fall between late January and mid-February, and that it takes two to three weeks for cargo ships to cross the Pacific, February and March are when we would expect Chinese New Year to have the greatest impact on imports. And subdued imports should explicitly lead to subdued trucking activity.


While the Chinese New Year holiday may cause a dip in trucking activity, it shouldn’t have a major impact on the U.S. trucking industry in a given year. That’s because the companies purchasing goods from China know the holiday is coming, and place early orders for parts and final products they may need during the import lull. Thus, truckers and trucking companies will experience higher activity leading up to Chinese New Year than they would in the absence of the holiday-caused import lull. The coronavirus is different. There was a very short period of time between initial concerning reports and the outbreak, so U.S. importers were likely unable to plan ahead. Thus, the trucking industry likely never received the bump in activity that would have helped them get through a lengthened lull in activity due to the holiday extension. Further, the manufacturing and shipping situations in China are more complicated than a simple extension of the New Year holiday.

While the country’s workers would normally be returning to work as the holiday comes to an end, a large swath of the country, encompassing some of China’s major manufacturing and shipping hubs, remains shut down.9 Thus, instead of a few-week trucking activity lull, this lull could continue until the footprint of the virus recedes significantly. It’s currently unclear how long that could be, and, in the meantime, the virus could continue to spread and result in more shut downs.

That last sentence leads us to a simple question, but one that is very difficult to answer: What will the virus do next? We can look to the 2003 SARS virus outbreak for guidance, as SARS was also a coronavirus with origins in China – it should be noted that the term coronavirus represents a group of viruses, and that we refer to the new virus as “the coronavirus” because the official name, COVID-19, was not established until the time of writing and is not yet well-known. SARS spread quickly in China and other parts of eastern Asia before health measures and natural factors led to the virus completely disappearing in the global population within months. One of the factors that helped quell the outbreak was warmer and more humid weather as the year progressed; many viruses tend to spread more slowly in such weather.10 The new coronavirus may respond to weather changes in the same way. However, that does not mean this virus will completely disappear the way SARS did. STAT, a respected health news site,11 interviewed several medical researchers who explained that the new virus could survive beyond the initial outbreak, and evolve into a seasonal illness comparable to a common cold or the flu.12 Excluding the future impacts of a new seasonal respiratory illness, the belief that this coronavirus could survive to become such an illness implies that the initial outbreak may linger further into summer than the SARS outbreak. Thus, it could be several more months before the Chinese economy is back to full capacity and U.S. imports from China return to normal levels.

If the coronavirus were a temporary shock to a healthy trucking industry, the current situation would not be very concerning. We could expect most truck drivers to be sufficiently financially stable to survive a few months of reduced income. However, “healthy” is not an accurate characterization of the trucking industry over the past year. Regulatory changes resulted in a need for new trucks and more drivers at the end of 2017, and the subsequent increase in prospective industry-wide earnings led workers to flood the industry and companies to expand fleets. However, the race to take advantage of outsized profits led to a market overcorrection.13 By the end of 2018, the industry had an excess capacity of drivers and trucks, profits plummeted, and several companies and drivers were forced to leave the industry.14 The industry still hasn’t fully recovered, which means that the coronavirus has the potential to make a bad situation for truckers worse.

This health epidemic will eventually come to an end, and may do so as soon as temperatures in China begin to climb. Yet, the impact on a trucking industry thousands of miles away from the epicenter serves as a reminder that, while economic globalization has greatly benefited the global economy, economic impacts are now much closer than they appear. There may only be four cases of the virus in the Heartland, but there are thousands more who will be impacted without experiencing a sniffle.

Endnotes

  1. Johns Hopkins CSSE. Coronavirus COVID-19 Global Cases. Retrieved February 13, 2020, from https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

  2. Bui, Q. (2015, February 5). Map: The Most Common* Job In Every State. Retrieved from https://www.npr.org/sections/money/2015/02/05/382664837/map-the-most-common-job-in-every-state

  3. DeVol, R. (2018, June 1). Perspectives on Defining the American Heartland. Retrieved from https://heartlandforward.org/perspectives-on-defining-the-american-heartland

  4. Transport Topics. (2019, June 21). Top 100 For-Hire: Top Less-Than-Truckload Carriers. Retrieved from https://www.ttnews.com/top100/ltl/2019

  5. Transport Topics. (2019, June 21). Top 100 For-Hire: Top Truckload Carriers. Retrieved from https://www.ttnews.com/top100/tl/2019

  6. Strickland, Z. (2020, February 3). Coronavirus may Give Trucking Another Headache. Retrieved from https://www.freightwaves.com/news/coronavirus-may-give-trucking-another-headache

  7. McDonald, J. (2020, January 27). Mongolia Closes Border, China Extends Holiday to Fight Virus. Retrieved from https://apnews.com/1ea5289ff1a52d43a6ef8bb669b80276

  8. Strickland, Z. (2020, February 3). Coronavirus may Give Trucking Another Headache. Retrieved from https://www.freightwaves.com/news/coronavirus-may-give-trucking-another-headache

  9. BBC News. (2020, February 10). Coronavirus: Much of 'the World's Factory' Still Shut. Retrieved from https://www.bbc.com/news/business-51439400

  10. Roach, J. (2020, February 8). Spring may Impact the Spread of the Coronavirus. Retrieved from https://www.accuweather.com/en/weather-news/spring-may-impact-the-spread-of-the-coronavirus/675372

  11. Shmerling, R. H. (2020, February 4). Be Careful Where You Get Your News About Coronavirus. Retrieved from https://www.health.harvard.edu/blog/be-careful-where-you-get-your-news-about-coronavirus-2020020118801

  12. Begley, S. (2020, February 11). Experts Envision Two Scenarios if New Coronavirus isn't Contained. Retrieved from https://www.statnews.com/2020/02/04/two-scenarios-if-new-coronavirus-isnt-contained/

  13. Hitch, J. (2019, October 3). Economic Forecast for Trucking: Gloomy with a Chance of Recession. Retrieved from https://www.fleetowner.com/equipment/article/21704330/economic-forecast-for-trucking-gloomy-with-a-chance-of-recession

  14. Premack, R. (2019, October 4). Another 4,200 Truck Drivers Lost Their Jobs in September as a Recession Slams America's $800 Billion Trucking Industry. Retrieved from https://www.businessinsider.com/trucking-truck-drivers-job-loss-september-2019-10