What happened

Shares of transport companies were under pressure on Monday morning amid fresh evidence that the COVID-19 coronavirus outbreak is taking its toll on the economy. Shares of FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) each traded down more than 10%, and Old Dominion Freight Line (NASDAQ:ODFL) and Union Pacific (NYSE:UNP) each were off sharply in morning trading.

So what

Shares of shipping and transport companies have been under pressure for weeks as signs grew that the novel coronavirus outbreak was disrupting supply chains and causing global shipping volumes to tumble. We still don't know the full extent of the damage, but a couple of developments pre-market provided an indication of the risk to the U.S. economy.

The Federal Reserve on Sunday night slashed the benchmark federal funds rate by 100 basis points to zero, a sure sign that the Fed's internal data shows the U.S. economy under distress.

On Monday morning we saw the first of what is likely to be many metrics that led to the decision. The New York Fed's Empire State business conditions index fell a record 34.4 points in March to negative 21.5, well below economists' expectations for a reading of 4.8. The reading is the lowest level since 2009, and a clear sign of a difficult environment.

While these companies occupy different places on the supply chain, all of these stocks are closely tied to freight volumes and would suffer if the U.S. were to fall into a recession. The last-mile delivery operations of UPS and FedEx could see a boost from the U.S. moving to social distancing and avoiding retail centers, but that boost is unlikely to offset the impact of an industrial economy grinding to a halt.

Now what

We'll hopefully get more concrete data on what the disruption is doing to these companies on Tuesday, when FedEx is scheduled to report fiscal third-quarter results. The report is unlikely to be pretty, as the global supply chain disruption is almost certain to weigh on shipping volumes.

These are trying times for transport companies; the impact seems likely to last well beyond the current quarter and could linger into the second half of 2020 if the U.S. does fall into a recession.

All of these companies are quality operators with the wherewithal to survive even a prolonged downturn, but the stocks are unlikely to rebound until we see some indication that the outbreak is under control and economic activity begins to normalize.