UBS is forecasting that Asia revenues at UPS and FedEx will slump by 70% as coronavirus poleaxes global trade

• Trade volumes - particularly trade between Asia and the US - are already sinking because of coronavirus.
• That threatens transportation giants like FedEx and UPS, warned the transportation equity research team at UBS in a February 27 note.
• For the month of February, UBS said FedEx's Asia revenue will be down by 70%. UPS' Asia revenue will sink by 70% for the months of February and March, according to UBS.
• Other experts on warning on potentially disastrous affects, with one sounding the alarm on "short-term economic calamity rivaling the 2008 -2009 Great Recession."
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The transportation equity research team at UBS is lowering its near-term estimates for transportation giants FedEx and UPS as coronavirus slams global trade.

For Memphis-based FedEx, UBS is lowering its outlook for the package giant's earnings this quarter from $1.48 to $1.20 per share. The bank estimates that FedEx's revenue from Asia will be down 70% in February, while margins will sink by 35%.

A FedEx spokesperson declined to comment.

The earnings estimate for UPS, based in Atlanta, is sinking from $1.38 to $1.28 per share, according to UBS' research team. UBS estimates that UPS' revenue will be reduced by 70% in both February and March. Margins are slated to lower by 35% for those two months, UBS said.

UPS confirmed to Business Insider that coronavirus is softening demand in China.

"While demand has slowed, we are still flying into and out of China," UPS spokesperson Glenn Zaccara told Business Insider. "The impact of containment actions is yet to be quantified, but given the scale and challenges with resumption of business activities in China, there will be some impact in our International segment this quarter."

As of February 27 at noon EST, there have been more than 82,500 confirmed cases of coronavirus and more than 2,800 deaths. The vast majority are in China, where the novel coronavirus originated in December, but the disease is quickly spreading worldwide. In the month following the first confirmed case of coronavirus, the total global case count surpassed that of SARS.

Outside of the giants UPS and FedEx, freight transportation stocks have largely sank in the past week as coronavirus roils Wall Street. From peak to trough, UBS said February stocks is down among rail (-6.9%), parcel (-11.3%), trucks (-10.9%), and brokerages (-6.6%).

That's comparatively better than what transport stocks saw during the most-recent sell-off in the last quarter of 2018, when the average decline hovered around 20-30% from the stock highs to lows.

UBS stressed that it's uncertain whether we'll see a "V-shaped" or "U-shaped" recovery from this nadir. However, there's "rising concern" for the latter case.

'Devastating' effect on volumes

Donald Broughton, the managing partner of Broughton Capital, wrote to investors in a February 25 note that "the coronavirus is already driving negative economic consequences more dire than SARS and could produce short-term economic calamity rivaling the 2008 -2009 Great Recession."

Whereas SARS drove down passenger air volume, coronavirus is slamming airlines on the cargo and passenger sides. This tumble in cargo means the products that consumers take for granted could slowly dissipate.

Should coronavirus continue to impact China, South Korea, and other major hubs, the production of goods like cell phones, cars, medicine, and apparel will decrease. China exported $337 billion of goods to the US in 2019, while South Korea exported $52.5 billion.

In response, retailers like Amazon are taking early action. The New York Times reported last week that the Seattle-based giant is ordering products from China in an usually large quantity, and urging third-party sellers whose goods are made in China to assess their supply chains.

International trade in the early part of the winter is typically slammed by the Lunar New Year. Chinese factories typically close for a month, causing a slowdown in trade.

But industry watchers say the impact of coronavirus is outlasting and outdoing the Chinese New Year.

Steve Ferreira, CEO of freight consultancy Ocean Audit, told Business Insider that his Fortune 100 retail clients are flummoxed by the coronavirus' impact. Many are scrambling to find offices and factories outside of China to prevent further supply chain disruption.

From February 23 to 25, some 3,200 ocean freight containers arrived to the US from China, according to Ferreira's data. Last year, that number was 16,000; it's a decline Ferreira called "devastating."

Meanwhile, Broughton's air freight index declined by 9.1% in January 2020 from the previous year. It's also down by 14% from 2018. Air volumes in Hong Kong, the world's largest cargo airport, sank by 10.6% year-over-year last month while Shanghai, the No. 3 largest cargo airport, volumes are down 12.1%.

The cascading effects from companies being unable to produce in Asia, or unable to move those goods, are already being reported from Apple and Nike. "It could feel like 2008- 2009, at least for a few months," Broughton wrote.