At first, the world thought COVID-19 was only China’s problem, but just a month later, the virus made it to the rest of the world, requiring travel restrictions and social distancing in an attempt to mitigate its virulent spread. Now, the first country to experience the coronavirus is also first to be on the precipice of a re-emerging population and recovering economy. World economies were and continue to be severely affected by the pandemic with many industries still at a standstill. Meanwhile, we find that the shipping sector is sailing through uncharted waters. To stop the spread of the virus, people were or still are officially on lockdown, only being allowed to leave the house to shop for basic necessities.
The response to the COVID-19 pandemic by governments, communities, and companies has affected everyone’s way of life, as well as the processes of the global, regional, and local transportation systems. How it affected the global logistics sector and how long it will take to recover is what many are eager to know or are trying to predict.
Challenges in Logistics
Within the logistics industry, transport options are broadly divided into air cargo, overseas freight, and land transport. Currently, regardless of the means of conveyance, transportation and logistics professionals are trying to respond to a set of unique challenges with two different points of view that logistics leaders have been discussing these last few months:
- Because fear is the leading cause of the current economic disruptions, some logistics companies believe that, if the pandemic continues, customers might get scared into tightening their spending.
- Others compare their market share of online shopping to the share during the 2003 SARS outbreak. Since it is significantly higher, they think it may help reduce the economic impact of the coronavirus pandemic on the logistics industry.
Which of these two points of view is correct? Right now, that’s a tough question to answer. Logistics companies across the world have noticed some negative impacts due to reasons like:
- A shortage of labor (due to quarantine guidelines or illness) and disrupted labor management.
- A reduction in the movement of both finished products and raw materials from impacted areas.
- More cautious customers when it comes to buying non-essential items. Most of the customers have turned to online shopping, which further burdened the logistics networks.
- Regional hubs and global networks are experiencing capacity limitations. Even if raw goods and materials are available, they’re getting stuck somewhere in the supply chain. Finding alternate routes is difficult since COVID-19 impacts are felt globally.
According to a report published by The Harvard Business Review, uncertainties should be leveraged as opportunities to identify backups and redesign their processes. That can be achieved by mapping logistics processes and identifying the at-risk suppliers.
What Numbers are Saying
Several shipping companies have reduced the number of vessels going in/out of China. According to a WSJ report, the restriction of China’s trade routes is responsible for more than $350 million in weekly shipping losses. Global shipping and logistics have significantly slowed as a direct result of 7 out of 10 of the world’s busiest seaports being located in China. Some ships are stuck in quarantine zones, while others are in dock waiting for the labor to return to Chinese ports. Truck drivers spent nights in their trucks, waiting to unload cargo to ships that never showed up. There are delays in processing cargo with customers, and the usual rush after the Chinese New Year is not here.
And according to the ISM, businesses are not concerned just with how the pandemic is impacting global shipping. Rather, about 75% of U.S. enterprises have experienced a supply network disruption from air cargo to seaports, and from trucking to railroads.
In fact, some airlines have put their passenger airplanes to work as freight aircraft. In the rail cargo movement, there’s also been a significant drop. The trucking sector is experiencing certain temporary spikes in demand (besides seeing lower volumes). Those peaks are happening because many people have begun to stockpile, and store owners are trying to refill their stock more frequently.
In areas where non-essential businesses are forced to close in the evening, it leads to further delivery problems for those who receive trucks and shipments after regular working hours. The restrictions on delivery times have also complicated work schedules, so driver shortage and retention have become an even bigger issue. The logistics sector’s challenge is needing to serve more customers and make successful shipments while doing it in fewer work hours.
Help from Governments and International Organizations
Since logistics is a globalized industry, multilateral or international organizations and their managing teams are playing a crucial role in minimizing coronavirus impacts. They are making efforts to protect the interests and coordinate operations of shipping, air, trucking, and rail operations. For example, the International Road Transport Union (IRU) has called on the European Union and the UN to keep supply chains open and to provide financial support to logistics operators to sustain the global economy and transport systems. To protect the safety of workers, keep the port infrastructure running, and minimize waiting times and interactions, the International Maritime Organization (IMO) has provided guidance on the facilitation of maritime trade.
Furthermore, governments are also lending a helping hand amid the coronavirus outbreak. For example, Sweden and Denmark have provided loan guarantees to Scandinavian Airlines (their flag carrier). The UK has recognized logistics personnel as key workers and allowed them to continue accessing schooling and childcare while they work. Singapore has announced a plan to waive parking and landing charges to preserve their airlines’ personnel and to protect the wages of aviation workers, despite the travel restrictions.
The Effects of COVID-19
The coronavirus pandemic is impacting industries differently. While some feel a surge in demand, others have found themselves at a standstill. Companies have experienced an increased demand for food but also a surge in demand for electrical goods, medical supplies, and other items. Many people have been ordering items such as smartphones and laptops to work from home. There’s even been a surge in sales for freezers so people can stockpile on food. Large parcel deliveries may continue to grow in demand, as many are unable to go out and buy things for themselves or their families.
The retail capacity that’s not being used is now being diverted elsewhere, such as hospitals, food, and medical products. Many supermarket chains, as well as eCommerce giants (e.g., Amazon), are urgently recruiting more people to keep up with the surge in demand.
Both inventory levels and transportation prices have begun to take a negative turn in February. To stay ahead of the game, many companies revisited their supply chain strategies and diversified sources from which they procure raw materials or finished goods to be less dependent on Chinese manufacturers. However, that is a slow process – it takes time to rework transportation and logistics routes, as well as build alternative fulfillment capabilities in order to accommodate the changes. What businesses also need to anticipate are new movement restrictions.
To mitigate these supply risks due to global disruption, businesses are doing what they can. Since it is impossible to start stockpiling goods from Chinese manufacturers, businesses are diversifying their global supply chains by putting in orders to alternative suppliers (especially suppliers who are closer to their final market). While things are faster in the fulfillment aspect, companies may take longer to diversify their manufacturing locations.
On the other hand, the situation has led to the stockpiling of non-essential finished products, as well as unfinished products, in assembly factories that are waiting for components from overseas. Manufacturers whose production is halted or slowed due to the absence of a few components still have other components coming in.
Another factor that we need to consider is the upcoming presidential election, which will affect U.S. import-export strategies because of the global trade regulatory changes. When stocks are building up at different distribution points in a supply chain it adds pressure to 1- to 2-day delivery commitments. For many densely-populated cities, warehouse space in last-mile delivery zones is already at an all-time low.
Identifying and Securing Logistics Capacity
Understanding current and future logistics needs are crucial during a time of crisis. Companies must prioritize their logistics needs by the required time and capacity sensitivity of a given product delivery. Even if companies can get all the raw materials or finished products, they will have to pre-book logistics capacity in order to minimize their exposure to potential cost increases. Collaboration with the right 3PL (Third-Party Logistics) partner can be an effective strategy to increase capacity and gain priority on better terms. To be able to adapt to any environmental or situational change as quickly as possible, companies are trying to maintain an agile approach to logistics management.
When the COVID-19 pandemic comes to an end, the problems in logistics won’t. Even when we get back to normal, we won’t see a surge of freight movement. The pandemic is threatening a transportation and logistical slowdown, and it is still too early to quantify the full impact on production. However, devising a backup plan is necessary. Organizations must evaluate their current fulfillment and warehouse spaces, and should expect that temporary supplier changes will become permanent, and make decisive changes accordingly.
Once we bring the COVID-19 crisis under control, we will feel a collective sigh of relief. However, we need to understand that a similar situation can happen again and that the next disruption to supply networks, global shipping, and logistics could be just around the corner.