The global logistics industry had a turbulent 2019, registering 1.2% in merchandise trade volume growth due to the stagnant global economy, trade disputes, geopolitical uncertainties, and environmental regulations. In Q1 2020, the COVID-19 outbreak flipped the growth switch in every area of the economy, and the global supply chain is no exception. As the global economy grapples with the pandemic situation, its impact on global trade and supply chain is mounting with rapid deterioration in global investment flows.
The container movement in the transatlantic and transpacific trade lanes has contracted due to the COVID-19 crisis with China’s manufacturing shutdown and sudden recession conditions in North America and Europe. The backlog of delayed orders, port calls, and blank sailings have escalated volume pressures on the containerized supply chain. The pandemic has created a supply shock across the markets, causing severe supply chain disruption, unlike a negative demand shock during the 2008 global financial crisis.
Production logistics approaching deglobalization effect
The global maritime industry has been impacted both directly and indirectly by the COVID-19 outbreak. Weakening manufacturing confidence and low demand for commodities and raw materials are heightening the uncertainty for the ocean freight transportation industry. Strict containment measures imposed by governments around the world and preventive measures to mitigate the outbreak impact have led to a significant port calling, driving a knock-on effect globally with declined trade and cargo volumes in the Western US and North European ports.
The dramatic contraction in Chinese output has hampered the global manufacturing supply chain, reducing the cargo volume in the major ports of China and increasing bottlenecks in the domestic road freight transport sector. Industries that rely heavily on the Chinese supply base for intermediate and finished products, with lean and just-in-time inventory models, are expected to shift their production logistics using near-shoring by increasing inventories to warehouses in their domestic markets.
Workforce shortage and closed borders impact the road freight and distribution services
The economy lockdowns across regions are proving to be a nightmare for road freight transportation and distribution services. The labor shortage in the ports and terminal hubs along with border closures have stranded goods; the driver shortage in the trucking industry and reduced fleet deployments have led to supply chain bottlenecks. The global pandemic situation induced a rapid and unexpected rise in demand for online grocery, creating a tailwind for domestic road freight and distribution channels. Distribution challenges were intensified for the consumer goods supply chain due to panic-purchase behavior, resulting in constrained and out-of-stock supplies.
As the rate of infection increases, the demand for pharmaceutical drugs and respiratory hardware equipment is expected to reach new heights with hospital services. The need for medical devices, pharmaceutical goods distribution services and associated value-added services is expected to rise among government and healthcare institutions across the region. This requires pharma/healthcare contract logistics service providers to work closely with their customers to guard against supply chain disruptions, with increased inventory accuracy across the distribution network. This poses an opportunity for logistics companies to utilize on-demand warehousing with the outsourced workforce for value addition and order fulfillment processes to overcome in-house labor shortages and storage space constraints near the major consumption centers.
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, agility, process flexibility, and collaboration to support their customers in anticipating disruptions and mitigating the respective impacts.
With the global 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. Production logistics service providers should focus on testing multimodal freight movement as a solution for customers with high dependence on the Chinese supply base, considering their potential dual-sourcing strategies and development of an alternate supply network. 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.