With 134 known cases as of March 16, Indonesia is not magically immune to the novel coronavirus disease (COVID-19) outbreak, which began in Wuhan, China, in January and has now been declared a pandemic by the World Health Organization, affecting over 115 countries. Even when health officials play down our vulnerabilities, the impacts of the crisis particularly on various sectors of the economy will undoubtedly be felt for a while.

As such, economists must watch for symptoms in logistics and transportation services to anticipate subsequent shocks.

Wuhan sits on the shore of the Yangtze, the world’s busiest riparian waterway. More than 80 percent of China’s river-borne traffic moves on through this great river where Wuhan alone handles close to 1.5 million containers a year.

The surrounding region also supplies important commodities; thousands of tons of coal, steel, crude oil and fertilizer. It is not hard to foresee that a prolonged supply chain disruption will tremendously impact China and her trading partners, including Indonesia.

China’s dominance in the global economy has been rising since becoming a member of the World Trade Organization in 2001. Her global share of containerized shipment grew from 10 percent in 2003 to 14 percent in 2019 whereas her global share of dry bulk commodities imports grew dramatically from 11 percent to 34 percent in the same period.

The Chinese economy imported 20 percent of global chemicals, 18 percent of gas and 16 percent of crude oil produces in 2019. A disruption in China, which is central to the global value chain, would cause serious backward and forward impacts.

Transportation, which connects producers and consumers, may offer insights about the extent of these impacts.

Operational delays in the past two months could reduce the containerized cargo volumes at Chinese ports, including Hong Kong, by over 6 million twenty-foot equivalent units (TEUs) in the first quarter of 2020.

Consequently, this contraction is expected to moderate the growth of global container throughput by at least 0.7 percent this year. As of the third week of January, container vessel calls at key Chinese ports dropped by 20 percent. This sluggishness is reflected in oil prices drop, crashing into a bear market.

Container lines are bracing for an estimated revenue hit in the US$300-$350 million range as they are blank sailing due to curtailed demand, wiping out 1.7 million TEUs of cargo out of the supply chain. Thus, at $1,000 per TEUs in freight rates, this loss is worth $1.7 billion shortfall in revenues for carriers’ revenue.

Shippers use the Baltic Dry Index (BDI), a weighted measure of demand versus supply of dry bulk carriers, to check the temperature of the global economy. The demand for shipping varies with the volume of cargo traded across the globe. Therefore, BDI is a good proxy for global trade of construction materials, coal, metallic ores and grains — as commodities shipped almost exclusively by dry bulk carriers.

According to Bloomberg, all BDI indicators — depending on type of operating vessels — have been slumping up to the third week of February, indicating a freeze in the industry. The BDI dropped 60 percent from December 2019 to only 465 in the third week of February 2020.

Similarly, the BDI for both dirty tanker (oil) and clean tanker (liquid natural gas) both collapsed by 45 percent and 25 percent respectively. Consequently, it indicates an impending slowdown in global economies especially in manufacturing and construction.

Evidence from Samudera Indonesia (SMDR), which operates ports and ships for domestics as well as international cargos, exhibits similar trends that might mirror declining trade volume in Indonesia. The preliminary figures show that SMDR port recorded a 10 percent drop in international cargo throughputs up to the second week of February on a year-on-year (yoy) basis while the domestic cargo remains stable.

Similarly, SMDR’s vessels carry 17 percent less cargo outbound and 14 percent less cargo inbounds up to fourth week of January 2020 on a yoy basis.

While it is too early to estimate the exact figure in this first quarter of 2020, these trends offer some salient points to consider.

First, we should expect delays in manufacturing supply chain in the coming months. In previous years, Chinese manufacturers took shorter periods for the annual Lunar New Year break, but this year they remain shut until late February. Several major operators have announced blank sailing programs due to weakened demand.

Second, fraction of trades to and from China have been canceled or deferred to the second semester. This phenomenon might diminish new purchases and deteriorate commodity supply and demand in the global markets.

Commodity prices have dropped by the end of January 2020 compared to the previous month; aluminum by 8 percent, cotton by 6 percent and copper by 2 percent.

Indonesia would do well to anticipate these impacts as our exposure to China is significant. As of 2018, China accounted for $25.8 billion of Indonesian exports and $34.3 billion in imports. The foreseen impact due to discontinuity of raw materials might further hit Indonesian small and medium enterprises (SMEs) relying on Chinese imports.

On the other hand, the capacity of Indonesia´s local production is being tested in the absence of imported textiles and food items to name a few. If correct measures and trade facilitation are put in place, this might be an opportunity to boost production, reduce SMEs’ dependency on Chinese imports and shape a more resilient economy in the long run.

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Ibrahim Kholilul Rohman is head of Samudera Indonesia Research Initiatives and Harya S. Dillon is secretary-general of the Indonesian Transportation Society (MTI). The views expressed are their own.

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