The Implications of Covid-19 on Logistics Transportation

Written by Kirti Ratan Umralkar, DLSM

by Kirti Ratan Umralkar, DLSM

The impact of covid-19 has been largely felt across different sectors and not evenly spread. In fact the effect has been heterogeneous. The Covid-19 pandemic has infected millions of people around the globe and spread with alarming speed and bringing economic activity to a near-standstill. As a consequence the world of cargo has suffered losses due to tighter regulation and border closures to halt the spread caused economy downturn due to blank sailings, grounded planes, containers piling up on quays and congestion and demurrage. It had serious impact on Logistics transportation. In this article we will discuss the implication of COVID-19 on transportation, which is part of Logistics.

COVID 19
Image taken from just-style.com

Logistics Transportation

Transportation is the key element of the logistics chain, it occupies nearly one-third of the amount in the logistics cost and takes a crucial part in the manipulation of logistic. Without transportation no movement of goods or freight can happen. Transportation is required in the wholeproduction process, from manufacturing to delivery to the final consumer and returns.

The Demand for Air Freight

Demand is picking as China and most of the countries in Europe start to recover from the pandemic. Fifty percent of world’s cargo for air freight actually is transported in the belly of passenger planes. Some of the major airlines have started limited travel, and due to limited capacity companies are scrambling to get the products in, causing the freight rates to double.

Due to surge of demand many passenger airlines are providing freight services adapting the passenger aircraft to transport medical supplies such as PPE, medicines, baby wipes, health care systems such as ventilator. This trend may continue for a while until all travel restrictions are eased. With the grounding of many airplanes and provide patient access to medication and treatment, Pharmaceutical Industry, with some innovation, can use available temperature controlled containers, which can hold temperature for 120+ hrs or so. The two diagrams below show the passenger airplane that was used as a freight carrier.

Air cargo
Air Transportation
The above imagesare taken from logisticsmgmt.comand joc.com

The Change in Transportation Demand Pattern

As Air freight transportation becomes more expensive, to save cost suppliers will plan for using Premium ocean transport and certain boats that are smaller and faster and lesser days transit time (10days) than normal vessel does (21days). Prior to COVID-19 pandemic, transportation demand pattern was more seasonal such as CNY, Christmas, Olympic games etc. Post COVID-19, demand has become unpredictable.

Shopping
Image taken from: cnbc.com

As the cure for virus is ongoing, it is difficult to predicate the exact resurgence of the economy. To mitigate the effect of virus, most country governments advice their citizen, staff of companies and corporate to WFH(Work From Home). Ordering online, Video conferencing, become the new norm, essentially disrupting the supply chain especially the trucking industry. Many companies are holding trucks and this long tail trucks were redeployed to supply to restaurants or retailers such as food and beverages industry etc to ease the financial burden of under-utilization.Using technology trucking industry can reallocate capacity across the country in the right corridor, at the right spot, on the right lanes to reduce empty miles. 

Supply Chain Disruption

It is predicted that container transport may drop by 30% and will remain weak for the rest of the year. The shipping industry is facing formidable challenges for reduced available capacity, equipment coupled with congestion in specific ports with related surcharges and blank sailing. As a result of which this disruption due to COVID-19 would reshape the shipping industry, especially the effect of COVID-19 on global supply chain network. Companies should start looking at restructuring their supply chain, such as reduce the risk of dependence on particular regions for supply, hence shipping industry should be prepared for this structural change.

Shipping industry should enable itself to implement digitization and innovation within the industry. This enables good collaboration amongst the different stakeholders. Investment in intelligent freight technologies should become a priority, to effectively manage efficiency, capacity and cash to ensure a comfortable position in the post COVID-19 period.

For Shopping
Image taken from: washingtonpost.com

Recovery by Mode of Transport

Recovery for Less-than-truckload (LTL) and full-truckload (FTL) will be faster than other mode of transports because both shipping carry a heavy proportion of fast-to-return agriculture, food, and services and benefit from growth in e-commerce. FTL’s freight mix also contains 16% of fast-to-return basic commodities. Air cargo will take few years to recover because the two largest shipper for light machinery and electronics will be slower to return. Rail transport will take more than four years to return, due to high exposure to slower-to-return coal, oil and gas. All mode of transport are facing downturn and the recovery will start may be next year.

Dispersion or Diversification of network route

COVID19 has got shipping companies rethink their strategy. Countries now want diversification of operation to shift from china to India, Mexico or SE Asia. These routes, namely US-India or US-South East Asia being east coast  is geographically more closer than US-China, i.e. Trade through west coast.

China is increasing their share of trade by collaborating with other countries other than U.S. Furthermore freight movement is happening via rail shifting from sea or road also called as ‘Modal Shift’ to reduce congestion. This is also termed as freight diversity, minimizing of depending on a major mode of transport. This is evident by China doing trade with Europe via rail . The rail takes between 15 and 18 day from China to Europe, roughly half the time to move container via ship. Rail transport is one of the feasible option for companies to send and receive goods between the regions as fast as possible. This modal shift from Sea, which accounts for 90% of freight transport to Rail, enables quick response to market demands.

2018 commodity mix
Freight Tonnage
The above images are taken from Mckinsey & Company

Forecast by World Trade Organization

World Trade Organization has predicted that global trade could fall between 13 and 32 %. This could result in regions suffering double-digit percentage declines in trade. Exports to North America and Asia will be the hardest hit. Consequences such as reduced cargo shipment, missed port call, blank sailing will have a negative impact on the financial capability of organization. Cash flow, liquidity risks, will leave shipping uncertain about additional financing where it is required and/or terms are acceptable for refinancing.

Mitigation and Forward Planning

Countries like Singapore have introduced various measure to mitigate the effects of COVID-19, such as “GREEN LANES” for trucker for faster clearance. Introducing new information system(SAFE Entry) and data initiative. Providing stimulus to ease financial impact on freight sector etc. Transportation via Sea remains open to ensure continuity of trade by sea, hence global supply chains remain undisrupted. To better cope up with such pandemics, Singapore has taken the initiative of implementing new information systems. Key infrastructure projects were identified for further advancement to prevent congestion due to such pandemic situations.

A more agile solutions should be deliberated by logistics solution providers to form a dynamic core of speciality solutions. This could be plans for air charters, dynamic route changes and may be alternative border entry points. This could better prepare future companies such as manufacturers and bio-pharmaceuticals to develop broader supply chain networks for both transport and storage.

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Conclusion

This disruption cause radical changes in the shipping industry. COVID-19 has illuminated over-dependence on China for demand and supply. It would lead to diversifying the supply chain routes, increased regionalization and also increased investments in freight technologies such as artificial intelligence software, big data analysis etc. This would help to manage supply chains and autonomous shipping.


References

Jeff Condon, et.al. (2020). “Global freight flows after COVID-19: What’s next?” Retrieved from https://www.mckinsey.com/industries/travel-logistics-and-transport-infrastructure/our-insights/global-freight-flows-after-covid-19-whats-next, accessed on 12/09/2020.

Jeremy Ng, DPSM. (2020). “Key Considerations for Hotel Procurement Post Covid-19”. Retrieved from SIPMM: https://sipmm.edu.sg/key-considerations-for-hotel-procurement-post-covid-19, accessed on 11/09/2020.

Lee Meng Yin, DPSM. (2020). “Mitigating Global Sourcing Risks in a Pandemic”. Retrieved from SIPMM : https://sipmm.edu.sg/key-considerations-for-hotel-procurement-post-covid-19, accessed on 13/09/2020.

Mazars, Singapore. (2020). “What will transport and logistics look like in the post Covid-19 era?” Retrieved from https://www.mazars.com/Home/News-and-Insights/Covid-19-Mazars-Global-Resource-Centre/Covid-19-Mazars-insights/Economic-impact/What-will-T-L-look-like-post-Covid-19, accessed on 11/09/2020.

Monique Giese. (2020). “Troubled waters for the shipping sector , In the wake of COVID-19 these could lead to opportunities in the newreality”. Retrieved from https://home.kpmg/xx/en/blogs/home/posts/2020/06/troubled-waters-for-the-shipping-sector.html, accessed on 11/09/2020.

World Courier. (2020). “How will COVID-19 impact specialty logistics now and in the future?” Retrieved from : https://www.pharmaceutical-technology.com/sponsored/how-will-covid-19-impact-specialty-logistics-now-and-in-the-future/, accessed on 12/09/2020.

Xchange. (2020). “COVID-19 : The Shipping Industry and the call for Force Majeure”  https://container-xchange.com/blog/the-call-for-force-majeure/, accessed on 12/09/2020.

About the Author: Kirti Ratan Umralkar has substantive years of experience in international trading and shipping, and is conversant with trade documentation and negotiation. Kirti Ratan holds a Bachelor of Science degree and is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Logistics and Supply Management (DLSM) on September 2020 at SIPMM Institute.

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