The COVID-19 outbreak, which reportedly originated from a market in Wuhan city in the Chinese province of Hubei, and later spread throughout the world, has caused drastic disruptions in supply chains globally. With constant lockdowns, regular increase in the number of corona affected patients and related deaths; many industries have come to a standstill. Economists now expect a global recession, the length and depth of which will depend on the virus and government intervention.
”As COVID-19 spreads globally, we are seeing increased supply chain disruption, but also changes in consumer spending habits,” commented Sarah Watt, Senior Director Analyst with the Gartner’s Supply Chain Group. “Supply has been impacted in three primary ways: limited access to employees due to quarantines, factory closures or manufacturing slowdowns and limited access to logistics to move goods. Most supply chain organisations are in crisis management, assessing impacts and response on a daily, if not hourly basis.”
Sectors such as tourism, aviation, hospitality and trade has faced the first brunt of the severe travel, assembly and activity curbs imposed by the governments across the world, followed by a wider impact on other sectors as economic activity has stalled.
In line, sectors such as consumer durables, automobiles and pharmaceuticals are currently feeling the brunt of supply constraints.
India, one of the fastest-growing economies in Asia, too, is hugely feeling the economic impact of COVID-19. Early estimates by the government suggests, India’s economic growth could take a hit of up to half a percentage point in FY21 because of the disruptions caused by the COVID-19 outbreak. But independent economists see a deeper cut of up to one percentage point.
“On top of the likely consumption slowdown, production is also going to be hit,” says D K Pant, Chief Economist at India Ratings and Research. In the current situation, “no one is going to pile up inventories”.
Given all this, the main question logistics industry professionals are asking, is whether this will have long-term effects on supply chain management and how long it will take for the manufacturing industry and the economy as a whole to recover.
Preparing the supply chain
Developing a cogent supply chain response to the outbreak is extremely challenging, given the scale of the crisis and the rate at which it is evolving.
However, there are measures that can be taken now even if you’re not fully prepared. And although its long-term consequences have yet to fully play out, the COVID-19 outbreak already provides some lessons about how you can better prepare your company to deal with future large-scale crises.
“Even as businesses and economies combat the slowdown caused by the COVID-19 pandemic, the international logistics and supply chain is steadily evolving to rise up to the challenge,” says Aditya Vazirani, CEO of Robinsons Global Logistics Solutions.
“Logistics and Supply chain companies are exploring and adopting new models that are more agile, with a focus on optimisation and non-linear operations that can absorb disruptions of this magnitude,” says Vazirani.
According to Vazirani, supply chain leaders should focus on fiour main areas to mitigate disruption from the coronavirus:
- Educate ground staff: Effective handling of packages is this crucial to ensure they do not contract any virulent material through the consignments. Educating the staff to adhere to the requisite precautionary protocol and marinating the discipline, is crucial when they are out on the field.
- Optimise processes: From effective management of warehouse space, human resources and transport fleet, to streamlining processes through freight integration, effective optimisation across the supply chain is vital to ensure lean operations. Creating internal processes that allow efficient monitoring and management of these processes can go a long way in creating value and sustainable operations.
- Digitise the supply chain: Setting a digital supply chain network is no longer just a matter of upgrading technology but need of the hour for logistics and supply chain service providers. By leveraging Internet of Things (IoT) and Artificial Intelligence (AI) for smart warehouse automation, tracing and tracking and generating end-to-end visibility for a connected and optimised supply chain is vital so as to tide over not just the current crisis but also for building up an agile network that is well prepared to take in similar disasters in the future.
- Evolve as value creators and partners: Understanding the impact of COVID-19 outbreak on various sectors, it could be anticipated that the global economy would take a considerable time to bounce back. As the lifeline of global trade, it is of significant importance that the logistics and supply chain network service providers step up to evolve as real value creators and partners in the process of rebuilding the financial world. Businesses across the world would need a stronger backbone to rely on, once international borders open again.
Air freight industry grapples with enormous losses
The International Air Transport Association (IATA) updated its analysis of the revenue impact of the COVID-19 pandemic on the global air transport industry; it now estimates that industry passenger revenues could plummet to $252bn. This estimate is based on the assumption that severe travel restrictions will hold for up to three months, followed by a gradual economic recovery later in the year.
Government intervention remains the only way to ensure airlines are able to survive for the long-term, and countries are already pledging their support to their respective aviation industries in order to protect employees, airlines, and the wider aviation business.
“The airline industry faces its gravest crisis. Within a matter of a few weeks, our previous worst case scenario is looking better than our latest estimates,” IATA’s Director General and CEO, Alexandre de Juniac expressed.
“Without immediate government relief measures, there will not be an industry left standing. Airlines need $200bn in liquidity support simply to make it through. Some governments have already stepped forward, but many more need to follow suit,” Juniac added.
Although the cargo sector has seen an upsurge in demand in the wake of shipments of emergency supplies, IATA says the reduction in passenger flights means some capacity has been withdrawn because airlines accommodated significant capacity for cargo on passenger aircraft.
Although airlines are reintroducing freighters and sometimes even adapting passenger aircraft to cargo operations in order to support the global supply chains, operators are facing challenges in countries where cargo crews are being subjected to the same quarantine measures as passengers.
“Since the beginning of 2020, globally over 2,00,000 flights were not able operate due to various governments isolation alert announcements restricting travel. Going forward, this resulted in the total drop of passengers which had a Tsunami effect on capacity of cargo globally. Added to that, the announcement of domestic flights suspension was a red alert of things to come, followed by the 21-day lockdown until April 14,” explains veteran freight forwarder and Joint Managing Director of Zeus Air Services, Bharat J Thakkar.
“With vital capacity having disappeared just like that, airlines have committed to operate additional freighters to and from India. But, with freighter demand at its peak, airlines have sought permission from DGCA to allow them to operate empty passenger planes to somehow meet the demand. For instance, last week, Air India flew a B 787 with about 14.5 tonnes of medical aid to Rome, while it brought back native Indians stuck there,” Thakkar said.
“The impact on the exposed sectors of shipping and airfreight is obvious. The question is how long will the impact be felt and how deep will be the fall in demand and prices,” says Sanjay Gupta, MD at Divine Freight Solutions. “There is no evidence that COVID-19 can be transferred on cargo but the air cargo industry is bracing itself for the impact of measures taken to slow the spread of the outbreak. The impact although is still uncertain, with demand under pressure, but there are expectations of an eventual surge in volumes,” Gupta elaborates.
“As a logistics provider, connecting all ends to ensure smooth operation is becoming a challenge. We are managing is with limited resources of airline capacity, and also not all exporters are accepting the huge surge in pricing. As such, either the orders are being cancelled and/or exporters are adopting at the wait and watch policy, hoping the capacity would increase and also the prices probably would come down April 1 onwards,” Gupta sighs.
For forwarder SD cargo who is involved in the handling and transporting of time-sensitive cargo and ambient-temperature pharmaceutical products, the pandemic business continuity plan in place insure their operational resiliency. “We will be working through this hard phase to transport & distribute medicines within air operations. We have backed up our operations with all reefer cold vans vehicles to ensure an uninterrupted cold chain,” says Deepak More, MD for SD Cargo.
Pharma supply chains feel COVID-19 hit, but not severe
The novel coronavirus is putting pharma’s complicated global supply chain under strain, no question.Besides, as the outbreak continues to spread across countries, concern about the potential for disruption to the manufacture and distribution of pharmaceutical products has intensified. T V Madhusudan, GM- Distribution, RPG Life Sciences couldn’t agree more. “COVID 19 shook the world. It looks like a war-ravaged situation. The supply chain is badly affected. There is disruption in supplies because of curtailment of air services and the enormous increase of freight cost. It is a very tiring time for all of us,” says Madhusudan.
The Indian government has put in place several preemptive measures to ensure there is no disruption to supply chains by speeding up customs and port clearances for specific goods including active pharmaceutical ingredients, and now it will focus on ensuring adequate cash flow in the system
“We have taken a lot of preemptive measures in terms of keeping supply chains going…in terms of the health,” Sanjeev Sanyal, Principal Economic Advisor to the Ministry of Finance said. “Now we need to take preemptive measures to make sure that the cash flow remains.”
Steps have already been taken to identify specific goods and ensure their imports especially pharmaceuticals, he said. Certification agencies have been directed to ramp up capacity to issue certificates expeditiously.
According to Sameer Baisiwala, Analyst at Morgan Stanley, the impact of Covid-19 on Indian pharma has so far been limited due to existing inventory levels across supply chain but this can change if supply shortages from China continue through the end of April.
India has a meaningful dependence on China for its raw material supplies. The global generic supply chain, however, can remain unaffected if the active pharmaceutical ingredient/intermediate shipments from China normalise over next two to four weeks, Baisiwala said.
The government has also issued guidelines for testing by private labs in the country, set price caps for such tests, and roped in national laboratories as the number of confirmed cases rise.
Shippers’ rising woes
Pandemics are a serious wake-up call for companies with global operations, as well as for their supply chain professionals to develop several alternate sourcing and manufacturing plans in different regions of the world to mitigate the risk from such adverse conditions.
As resources become constrained, firms must constantly re-prioritize delivery of products and services that are absolutely critical to meet customer needs and provide market stability.
Equally important is a thorough understanding of activities that must be de-prioritised to allow effective repositioning of available resources.
In fact, in certain cases, firms are importing certain spares, RM, etc. to save on lead times and keep their factories running, agrees Sunil Bharadwaj, DGM – Strategy & Supply Chain (Lifestyle Business – Central Functions), Raymond. “Imports are being done using air transport.”
“The COVID 19 effect is so much that even the normal documents are getting delayed for delivery for import supplies. Banks are also receiving documents delayed, leading to unavailability of papers for import clearance,” says Prashant Bhatmule, Head- Outsourcing at JK Paper,with citing other concerns. “In light of the Nhava Sheva Port likely to get closed, there is a heavy rush at the port, and CHAs are not allowed to enter the office. This is further delaying the process of clearance. We are in dark, whether the port or CONCOR would continue to charge on detention/demurrage/ground rent, etc. in view of this closure. If yes, this is going to be heavy loss for any industry. Even after receiving clearance form Customs, the customers are closed for delivery, making the alternate arrangements to be made for stocking, leading to additional cost and handling of goods.”
Going forward, Bhatmule expects the government to interfere and avoid such charges levied on the industry. “Additionally, transport rates have gone up due to the unavailability of transport vehicles. On one side, there is no business, and on the other side there are extra charges to be paid. Where will the industry go?”
“Many freight forwarder staff would work from home, but supply chains are affected as truckers, warehouse staff, and cargo handlers are restricted from carrying out operations,” says Sameer Gupta, Chief Manager (Supply Chain), JK Tyres & Industries. Gupta also warned that warehousing could come under strain as companies look to build up inventory. “The key is acting fast and pre-planning. The indirect effects are likely to be as important economically.”
Freight booking portal Freightos said that any backlog caused by the extended closures could motivate some time-sensitive importers to shift modes from ocean to air.
However, according to Gupta, an extended shutdown would likely push that rebound in demand and prices beyond the seasonal norm for ocean, and perhaps even more so for air as some shippers choose to expedite delivery of backed up orders.
“Great uncertainty exists with regard to how quickly air cargo demand from China will return on a large scale,” says Gupta.