UPDATE: COVID-19 and the HVAC Supply Chain

BY Tim Fisher
3/27/2020 - HVAC Market Intelligence , COVID-19

In a recent post I documented which countries, over a five-year period, exported the most A/C parts and equipment to the U.S., as well as a few indicators for measuring how Covid-19 is affecting the industry. In response, several HARDI members asked where a Covid-19 outbreak would cause the most damage to the U.S. supply of A/C materials, and how the quantity shipped from those countries can be measured over time. China’s recent economic downturn is plenty concerning, and there is still reason to believe that another Covid-19 outbreak within the country would cause serious problems for the U.S. market. However, given that the worst part of China’s Covid-19 outbreak occurred during the Chinese New Year, the ensuing production downturn has so far had a limited impact on the U.S. supply of A/C parts and equipment. Likewise, heartening reports like this one from the Wall Street Journal show Chinese ports steadily coming back to life, another indication that things there are normalizing. Nevertheless, we’ll have a much better idea as to how seriously the industry was injured by China’s decline when February’s trade data is released on April 2nd (which can be accessed and exported to Excel via this user-friendly site). In the meantime, data hungry members can lean on information coming from the Ports of Long Beach and Los Angeles for insight into how seriously trade with China declined in February. Together, the two ports received 132,564 fewer containers in February than a year ago- a 20 percent decline.

graph1

Although China is consistently one of the largest exporters of A/C parts and equipment to the U.S. – 20 percent of all U.S. A/C imports came from China over the last 5 years – its importance to the U.S. HVACR market pales in comparison to Mexico’s. Over the same 5-year period, 57 percent of American A/C imports came from Mexico. China and Canada – the second and third largest exporters of A/C products – together combined for just 32 percent of U.S. imports. Given the total amount of A/C materials entering the U.S. from Mexico, it should come as no surprise that the supply chains for U.S. manufacturers and distributors would be most affected by a large Covid-19 outbreak in Mexico (especially if that outbreak results in widespread business closures and an economic shutdown comparable to China’s).

graph2

In 2019, 54 percent of all A/C materials imported to the U.S. passed through Laredo, TX – the largest circle on the map above. Fortunately for the HVACR industry, both U.S. and Mexican officials continue to recognize the strategic importance of the border in the face of Covid-19, and have thus far allowed trade to continue despite prohibiting other forms of non-essential travel (a similar arrangement has been made with the Canadian government – also good news for the industry). However, despite the positive news regarding U.S. – Mexico trade, a worst-case scenario for A/C suppliers and distributors could be on the horizon as Mexico’s slow reaction to Covid-19 has health officials worrying that Mexico may experience an especially severe outbreak. Thankfully, in recent days Mexican officials have begun ramping up their efforts to stop the spread of the virus, temporarily suspending public gatherings in excess of 100 people and closing schools through April 19th. Other more stringent actions are happening on a state level, where various state and local governments have begun issuing stay-at-home orders to slow the virus’ rapid growth.  

graph3

Considering what the world now knows about coronavirus, projections of its rapid growth in Mexico should not be surprising. However, no other country is as vital to the HVACR industry as America’s southern neighbor. The state of Nuevo León and its capital city of Monterrey are both among the wealthiest areas of the country and the primary source of A/C products manufactured in Mexico. As of March 25th, Nuevo León trailed only Mexico City in the number of reported Covid-19 infections, with 52 to Mexico City’s 82. One only needs to use their imagination to understand what the consequences of a severe outbreak in Nuevo León – and subsequent closure of manufacturing plants – would mean for the U.S. supply of A/C parts and equipment. Like in the U.S., Mexican officials are currently evaluating which businesses are essential vs. non-essential, (see our Covid-19 FAQs for more information) and HARDI Mexico is actively working with state and local governments to ensure that HVACR businesses are protected. Regardless of the outcome, HARDI members face a long road ahead as the virus’ growth in the Americas shows no signs of abating. The Market Intelligence team will be monitoring and reporting on the situation in Mexico – and elsewhere – in the weeks ahead, and interested HARDI members can monitor the flow of goods from Mexico to the U.S. via this Department of Transportation dashboard.


 If you have any questions or concerns related to this post or the effects of COVID-19 on the HVACR industry, contact Tim Fisher.

Please see our COVID-19 resources page on our website for more assistance on this issue.

Email Signatures-21

Tim Fisher
Team Leader, Market Intelligence