Despite the increasing uncertainty with regards to the financial hit to industries, Russell Group have modelled the exposure for companies and countries. In the first of these articles, we take a look at the impact on shipping.
How the Transportation Layer became the foundation of the global economy
26 March 2020 | Blog Post
The current coronavirus pandemic that is sweeping across the world has impacted all of us – from governments to households. Fundamental changes are being made to our way of life as a result of the pandemic such as remote working. Early estimates of the impact of the pandemic forecasted that most major economies would lose at least 2.4% of GDP in 2020. Meanwhile according to Statista, global economic growth forecasts for 2020 has been reduced to 2.4%.
Yet, a longer-term shift that is occurring because of the pandemic, is a fundamental restructuring of the economy that is underpinned by the vital “transportation layer”. The transportation layer encompasses everything from aircraft through to shipping, energy and telecommunications.
To understand how the economy is being affected by the coronavirus, it is essential to understand the exposure of the sectors involved within the layer.
Shipping, which is a crucial component of the transportation layer, has taken a significant hit because of the pandemic. The top 5 shipping companies, including Maersk, which represent 35% of the shipping industry have a $114 billion dollar exposure to the slowdown in the Chinese economy according to Russell Group analysis.
Likewise, aviation has taken a huge hit to the point many airlines need government support or face bankruptcy. According to the International Air Transport Association (IATA), airlines will face a $252 billion fall in passenger revenue due to the pandemic. Therefore, it was no surprise that the stocks of Boeing jumped up in response to the passing of a $2 trillion dollar stimulus package that contained a $500 billion package for larger corporations.
Alternatively, the opportunities brought by on the crisis has seen a large surge in user and investor demand for telecommunications. Zoom, the teleconference app that has been used by employers has seen its stock increase by 117% in the first three months of 2020, with a valuation of $29bn, doubling its original valuation in April 2019.
Whether the stock is a winner or a bubble waiting to burst, remains to be seen. Viewing this surge of demand for telecommunications brings to mind Warren Buffet’s famous saying that investors should be “fearful when others are greedy and greedy when others are fearful”.
Over the next coming months, we will analysing in greater depth the impact of the coronavirus by looking at the multiple sectors within the transportation layer, examining how they are impacted by the virus and how data analytics combined with risk management expertise can offer new solutions.
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