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Impact of Coronavirus on Logistic Sector

Impact of Coronavirus on Logistic Sector

Infrastructure | Jul, 2020

Logistics is one of the crucial sectors in the interconnected world and in the wake of COVID-19, priorities for individuals and businesses have drastically changed. Starting in 2020, each country across the globe has closed international borders that has crippled international logistics and trade.

Impact of SARS COV-2 has hampered the supply chain in the logistics industry through freight, sea, and air sectors. In the Asia Pacific, the decrease in freight tonne-kilometer of 37.4% in May 2020 when compared with May 2019, exemplifies the impact of coronavirus outbreak on the aviation industry in the region.

Ocean Freight: Freight movement through ports has taken a serious hit. In the first few months of 2020, total container volume in China dropped by over 10%. Companies such as DHL have also confirmed low demand on Latin America, the United States, Europe, and Asian routes.

● Land Freight: Land transportation was permitted in several countries during the lockdown. It was the only mode that was partially available. Rates were on the higher side for road transportation due to travel restrictions in numerous cities and trucking capacity being strained by demand for medical supply and food transportation. Only rail services for goods transportation were allowed, thereby witnessing high demand during the restriction period.

● Air Freight: Air freight is one of the most affected transportation routes. Countries have completely banned international passenger flights and domestic flights have witnessed significant reduction. One of the ramifications of lockdown is the steep decline in passenger flights. However, air cargo was still functioning during the lockdown but only for transporting essential goods. In the month of March-April, the volume was very low and carriers witnessed delays in consignment deliveries. For the month of June-July, the capacity has increased but still, the numbers are low from previous year Y-o-Y basis. The indefinite ban on international cargo has paralyzed the supply chain of several end-user industries such as automotive, consumer goods, among others, which serve as the backbone of any economy

Impact of COVID-19 on small & large logistics partners:

Post lockdown several limitations are still in place, which is resulting in delayed delivery of packages and that too at higher rates. COVID-19 is having a different impact on larger and small vendors. For instance, e-commerce companies witnessed an increase in purchases, which was primarily due to the shopping of essential items while other companies that operate in auto witnessed low or nil demand.

  • Small truck businesses were severely hit due to COVID-19 as they did not have any recovery or backup plan. Also, the lack of implementation of health guidelines like disinfecting deliveries during the viral outbreak complicated the entire situation for them.
  • Leading logistics players such as CEVA Logistics and DHL declared their contracts as Force Majeure on grounds of SARS COV-2. Force Majeure is a common clause in contracts that frees both parties from liabilities due to the act of the god.

China is the global manufacturing hub with seven of the world’s busiest seaports located in the country itself. The outbreak of SARS COV-2 from Wuhan province resulted in lockdown and slowdown in the shipping of cargo. Sea vessels were not permitted in the lockdown which delayed the loading/unloading process while other ships were stuck at the docks with no workers. Several countries including the United States, Australia imposed restrictions on cargos coming from or through Chinese ports. As a result, several companies were forced to change water trade routes and others such as Deutsche Post DHL suspended delivery, pickup, and warehousing services in several provinces of China.

The adverse impact of shipping also incapacitated the production, leading to a crippled global supply chain. Manufacturers who relied on Chinese goods or didn’t have enough stockpiling of goods were forced to order products from alternate suppliers at higher prices. On the other hand, at the assembly plants, there was stockpiling of unfinished products as manufacturers were waiting for components from other places.


Challenges before the Logistics Industry in India: 

Indian logistics industry is a USD120 billion industry consisting of trucking and road transportation. More than 70% of transportation takes place through roads. The logistics industry of the country is highly fragmented with the presence of several unorganized and few organized players. It is easy to decipher that the viral pandemic has brought the industry growing with 10% Y-o-Y growth to a standstill. There are several factors which are contributing to a slump in the logistics industry of the country, which are as follows:

  • COVID-19 has disrupted the production at several sites which can be attributed to lack of raw materials or issues related to their movement. Even if finished goods are ready to be shipped, the routes are closed and finding an alternative route is difficult. All of these factors are negatively affected the logistics industry.
  • When challenges related to raw material procurement can be overcome, lack of skilled labor is also a challenge. Due to fear of viral infection, workers are not willing to return to their workplaces. In an organized long-haul trucking fleet, more than 50% of these trucks are without drivers while short-haul transport is working at reduced capacity.
  • If trucks are moving and overcoming above mentioned challenges, then they are stuck at check-posts or have no labor to unload or load.  
  • As a precaution, customers are refraining from going outside for purchasing non-essentials and are turning towards online shopping for the purchase of such goods, which is further burdening the logistics network.


Immediate steps that can be taken to bring the logistics sector back on track:

  • New Protocols for the Safety of Workers: First and foremost, the safety of the staff is the priority. Companies are implementing new protocols including social distancing, compulsive use of protective gear, and regular disinfection of workplaces, which were earlier non-existent in the logistics industry. All these steps are being taken to ensure the safety of the workers.
  • Alternative Mode of Transportation: Ongoing crisis is also serving as an opportunity and several companies are taking an alternative path for the transportation of goods. Use of passenger planes as freight aircrafts is one such step taken by some carriers such as Korean Airlines, Delta, America Airlines and Deutsche Lufthansa, among others. These companies have emptied the main cabin of aircraft and filled the belly with cargo shipments. While on the other hand, companies such as DHL are making use of chartered planes for delivering shipments.
  • SARS COV-2 has severely affected partnerships with third party vendors and demand for last-mile delivery is record high due to halted orders before lockdown. After the removal of lockdown, companies can form a small last-mile network with the help of local partners to address the increased demand and complete deliveries of packages.
  • The layoff is record high and companies are focusing more on cost-cutting. Businesses need to do a complete assessment of their systems and adopt flexible staffing, which can help them with multiple functions within a single company.

·         Regulations are changing on a daily basis, sometimes they are related to working hours in the city and sometimes for the area in containment zone. Companies need to regularly monitor rules and customer operations to adapt to changing environments.

Trends that will define the future of logistics industry:

  • Technologies such as the internet of things, artificial intelligence, and image recognition can play a crucial role in keeping any future pandemic at bay. This can be achieved through data or information collected through camera feeds, AI algorithms, image recognition, among others, to identify and isolate infected patients. Similarly, drones can be used for providing medical care to these infected patients.
  • Push for Digital Payments: When the majority of payments will be done online then the information generated in addition to the digital supply chain can be used for the identification of any potential epidemic or pandemic.
  • Stringent Cross Border Protocols:  Governments in several economies have enacted restrictions on the import/export of products. In the coming years, logistics charges are expected to increase as governments are planning to increase cargo inspections by strengthening cross border processes. This process can, however, elevate the overall shipping charges but will help in containing the disease.
  •  Restructuring of Supply Chains: The global pandemic has exposed the vulnerability of complex supply chains. As a result, several companies will plan to reduce reliance on a single partner and focus on diversifying through alternate partners. The companies can also reduce the size of their supply chain by opting for neighboring countries such as Mexico, India for the export of products and reducing dependency on China.
  • Technology is redefining the Sector: Due to disruptions in the market, stakeholders are forced to look for vendors with large pool of shippers and carriers. Therefore, businesses are planning and adopting digital platforms; the shift is slow, but it is happening. These digital platforms will help stakeholders and vendors to keep tap of demand. Also, due to changes in demand/supply, the prices of freight have also changed. These platforms can also help with that and provide data-backed insights on the new price benchmarks.
  • Earlier, majority of the logistics industry ran on paperwork and manual interventions. The situation, like COVID-19, has elevated the demand for digital payments and to reduce human intervention in the entire process. This step is even more necessary as social distancing is going to be the new normal this year.
  •  E-commerce Demand: Recently, e-commerce demand has witnessed significant surge and logistics companies can make the most out of it. Moreover, logistics companies need to improve their supply chain so that they can respond to this surge in demand.

·         Investment in automation is the need of the hour. Cobots today can not only assist workers but also perform repetitive tasks, improving the productivity and efficiency of work done. Companies can automate non-customer-facing and non-core tasks. Robots are safe and effective for a situation like this and are expected to observe increased demand and deployment in the coming years.

·         Working from home was the new normal for many in the pandemic. In order to mitigate through any other crisis like this, companies need to take initiatives and invest in IT systems so that remote system protocols, bandwidth, and security are there, whenever any work from home is needed. This step will allow companies to keep their businesses operational during the lockdown period as well.