Fighting the COVID-19 Battle

Share on


Fighting the COVID-19 Battle

“The COVID-19 outbreak has shown the industry how delicate the supply chain has become. During this difficult time, it essential for logistics companies to have an immediate focus on enabling end-to-end visibility, process flexibility, and collaboration to support their customers in anticipating disruptions and mitigating the respective impacts,” stresses Senthil Kumar Subbiah, Senior Research Analyst, Transportation & Logistics Practice, Frost & Sullivan. 

Senthil Kumar Subbiah, Frost & Sullivan 

Strict containment measures imposed by governments due to COVID-19 have resulted in plant closures, reduction in ports operations, travel restrictions, and affected both International and cross border trade. As per Frost & Sullivan analysis, trade contributes to nearly 20% of India’s GDP; the disruption caused by the pandemic across the supply chain has emerged as the key challenge facing the Indian logistics industry.

Due to a combination of factors such as global supply chain disruptions, the economic slowdown in Europe, and North America, strict containment measures and the lockdown has taken a significant toll on the economy reducing the GDP growth rate projections to 1.9% in 2020, according to recent IMF estimates.

Workforce shortage and closed borders impact the road freight services

Social distancing and economic lockdown are proving to be a nightmare for road freight transportation and distribution services. As per the notification issued by Union Ministry on April 15, 170 districts across the country have been identified as COVID-19 hotspots, where strict containment measures will be adopted. Due to the lockdown, people’s movement by any mode of transport remains suspended.

Distribution challenges were intensified for the consumer goods supply chain due to panic-purchase behavior, resulting in constrained and out-of-stock supplies as only the movement of essentials was allowed through roads earlier. As part of the relaxation, cargo movement for all types of goods has been allowed throughout the country.

Even though the movement of goods has started, there is a significant shortage of vehicle availability on account of driver shortages. Most of the impact of driver shortage is felt on the long and regional haul movements. Driver shortage in the trucking industry and reduced fleet deployments have led to supply chain bottlenecks across the country. The vehicle availability for intra-city goods movement is expected to improve in the next 10 to 15 days across all major industrial areas as the travel restrictions are relaxed, enabling drivers to return to work. The pandemic also induced a rapid and unexpected rise in demand for online grocery, creating a tailwind for domestic road freight and distribution channels.

India is dependent on the road as a primary mode of transportation, and road transport acts as a lifeline to clear the goods from airports and seaports. The disruption in road freight caused by driver shortages and fleet unavailability is having a ripple effect on the clearance of cargo in airport and seaports, leading to congestion at terminals.

Ocean freight transportation takes the slow lane

The maritime industry is both directly and indirectly impacted by the COVID-19 outbreak. Strict containment measures imposed by the Indian Government and preventive measures to mitigate the outbreak impact have led to a significant port calling, driving a knock-on effect with declined trade and cargo volumes. Weakening manufacturing confidence and low demand for commodities and raw materials due to plant shutdowns result in uncertainty for the ocean freight transportation industry.

The economy shutdown has led to supply shortages, and the pandemic situation is significantly impacting the maritime segments, from oil tankers to container lines. Decreased cargo volumes have impacted the volume throughput at ports. According to Indian Ports Association (IPA), between April and February of this FY20, major Indian ports have recorded a mere growth of 2.8%. A major share of this growth is also attributed to coal shipments, whereas other cargo categories like containers and bulk cargo experienced some slowdown in growth. IPA had also mentioned that the overall container volume slowed down to 3.5% in April- February as against 11% growth in the corresponding period of FY19. A backlog of delayed orders, port calls, and blank sailings have escalated volume pressures on the containerized supply chain.

Significant reduction in cargo volumes has forced major carriers to announce service cancellations and delays, and blank sailings from/to India and the Middle East, Europe, and the Mediterranean. Considering the uncertain market conditions, the trend is likely to continue and measures need to be taken to address the supply/ demand imbalance. If the situation prolongs, carriers are expected to opt for heavy capacity reduction measures, which would impact the fleet-to-order book.

The major container carriers are at low risk for bankruptcy with this COVID-19-induced downturn as they use blank sailings to counter the impact. However, the small and medium-sized carriers are highly exposed and vulnerable to this unprecedented situation. But, following the oil price crash, the extra cost of the IMO 2020 rule will be deferred until the global economy normalizes, posing a short -term relief for the carriers hit by slumping cargo volumes.

Airlines as a lifeline during COVID-19

The airfreight industry has been a vital partner in keeping the global supply chain functioning for critical and time-bound shipments. While COVID-19 is spreading at a rapid rate around the world, Airports Authority of India (AAI) said that over 80% of Indian aircraft have been grounded, responding to the plummeting demand and travel restrictions.

As no ban has been implemented on the movement for air-cargo, India-based airlines are operating their freighters and passenger planes (for cargo only) in/out of India. Despite government orders, few airlines are refusing to temporarily convert their passenger flight to cargo planes (by moving the seats that would maximize the cargo carrying capacity) as the airlines believe it will involve significant time and costs. The air-carriers prioritize on transportation of essential cargo and critical pharma/medical equipment.

Dedicated Indian freighters only have a 15% share in the domestic air freight market, according to Directorate General of Civil Aviation, and as a major chunk of the international volumes is handled by their international peers, while the Indian airliners operate on shorter distances. However, in the medium term, a sudden drop in capacity expansion and grounding of flights has resulted in increased demand for air freight. With severe capacity constraints, air carriers are spot rating all shipments, and the rates are expected to rise with demand. Few Air cargo freighters have replaced scheduled flights and introduced charter flight services to cater to the increasing demands.

India likely to benefit from supply chain disruptions

Under the current business scenario, dramatic contraction in Chinese output has hampered the global manufacturing supply chain. Industries that rely heavily on the Chinese supply base for intermediate and finished products, with lean and just-in-time inventory models have suffered severe supply chain disruptions. With China being one of the major suppliers of intermediate goods, disruptions in the supply chain had an adverse impact on some of its major trading partners. Several global companies are seeking to diversify their sourcing requirements by shifting a part of their supply chain from China (to other low cost countries). With relatively lower labor costs and a huge domestic market, India has emerged as a contender for companies that are looking for alternate supply sources.

Mitigation measures and contingency planning

The COVID-19 outbreak has shown the industry how delicate the supply chain has become. The heightened safety precautions have required the logistics industry to work in emergency services, as governments and logistics associations work hard to keep the essential supplies flowing. During this difficult time, it essential for logistics companies to have an immediate focus on enabling end-to-end visibility, process flexibility, and collaboration to support their customers in anticipating disruptions and mitigating the respective impacts.

With the maritime and air freight industry experiencing capacity constraints, logistics service providers should drive transparency by assessing “what-if” scenarios with customers to understand planned volume and strategic needs. Advanced capacity bookings for air cargo could mitigate supply risks for customers on emergency shipments. Freight forwarders and small and medium-sized freight operators should emphasize building digital capabilities to evaluate alternate route-to-market models and address potential operational gaps.

Digital logistics is essential to drive the adoption of e-freight to combat the spread of the virus through paper documentation. In the retail industry, order backlogs are creating inventory stocking issues. However, the adoption of the Internet of Things (IoT) in warehousing and distribution operations would facilitate inventory accuracy, ensuring the placement of the right products in the right place at the right time.

In the long term, robotics systems for warehouse operations, SaaS platforms for transportation management and control tower operations, and artificial intelligence-powered technology platforms for customer management will allow logistics companies to anticipate supply chain risk and promote sustainability goals with enhanced operational efficiency. 


More on Economy