Logistics companies will have to adapt to rising customer service demands while facing increasing cost, sustainability and risk management challenges.
According to Dr Peter Kilbourn, senior deputy head and lecturer at the Department of Transport and Supply Chain Management at the University of Johannesburg, even before the advent of Covid-19, logistics was a complex and challenging environment with razor-thin margins in a stagnant economy.
“Covid-19 has brought a lot of additional challenges. The types of challenges may vary from industry to industry as not all were affected in the same manner but there will be cross-cutting affects such as the impact of an economic downturn.”With many economists predicting a prolonged recession for the local economy – and some even the possibility of a depression - the sector will remain under pressure for the foreseeable future.
“One should remember that the demand for logistics is a derived demand,” said Kilbourn. “Therefore, in most industries we can expect a decrease in demand for logistics services under current circumstances – extending to the medium term.”This was confirmed by the latest Ctrack Freight & Transport Index for South Africa which showed a 14.7% decline for April 2020, with road freight volumes at their lowest since 2008.“On top of that many supply chains were bloated with products that did not reach their final destination by the time lockdowns were suddenly imposed. These products have to be carried at high costs,” he added.
“Additional challenges can be found in the extreme levels of uncertainty brought about by Covid-19. Nobody knows what its lasting effects will be on consumer demand on the one side and product supply on the other. In logistics, uncertainty is a killer as it normally drives inventory and costs upwards whilst making capacity planning very difficult.”
According to Kilbourn, industry operators are best advised to identify the main cost drivers and focus on bringing these down.“Fuel cost is a major one. Proper planning and scheduling of routes and consolidated freight movement has never been more important than now,” he said.
“This is also a time that calls for innovative solutions made possible by collaborative thinking and technological advances. Business models of operators will have to become more f lexible and adaptable considering the fast-changing environment.”Just as important is that government, with the support of industry, ensures the maintenance and further development of critical infrastructure such as rail and port operations while attending to the efficiency and effectiveness levels of parastatals.