The jury is still out on the full impact of Covid-19 on the logistics industry. Considering the industry’s exposure to trade, manufacturing and demand for goods, 2020 will be a year no-one wants to remember.The International Monetary Fund is predicting a 3% contraction for the global economy this year. With many countries in the world – including South Africa – still under lockdown, trade remains restricted.
According to James Hookham, secretary general of the Global Shippers’ Forum, there are many conversations about de-risking supply chains.
“Major buyers of goods and commodities are seriously reviewing sourcing policies and there are some major exercises already under way to de-risk supply chains – especially considering the high degree of reliance there has been on China. It is a situation that caught many cargo buyers completely unaware.”
He said a diversification of sourcing policy would be inevitable as buyers returned to the market. This would have an impact on logistics across the board. “We are already starting to see this simply by virtue of the resourcing of stock away from areas affected by tariffs, trade sanctions and restrictions.”
According to the International Finance Corporation (IFC), a member of the World Bank group, the anticipated economic recession will be a second demand shock after Covid-19, severely affecting logistics companies.“Operational constraints are expected to continue, leading to delivery delays, congestion, and higher freight rates.
However, not all segments will be impacted equally. Companies that serve e-commerce are seeing increased activity as consumers opt for online shopping of essentials, while those that serve other sectors (such as auto and consumer goods) will see a downturn.”One mitigating factor, according to the IFC, has been the record-low fuel prices that should provide some relief to transport operators, but overall, the uncertainty would exert downward pressure on revenues.Smaller companies in particular will be affected.
Locally, economist Mike Schüssler has expressed concern for small trucking businesses, saying they have been hard hit – and there’s a strong likelihood of them closing down.Internationally the IFC found a similar situation. “Smaller players tend not to have any backup, recovery plan, or intermittent operation plan. Lack of technology, as well as tools to follow health guidelines further complicate their response,” reads a report.That did not mean the bigger players were having it easy. In April, both DHL and CEVA Logistics declared force majeure, a clause allowing contracts to be declared null and void due to acts of God or other unexpected circumstances, on all their contracts due to Cov\id-19.
According to the IFC, the recovery and long-term impact of the pandemic on the logistics sector will vary from country to country, but logistics service providers have been warned to be prepared for the reconfiguration of global value chains.“The pandemic has exposed the vulnerability of extended and complex value chains.
As a reaction many of these supply chains may shorten or diversify through reliance on alternative partners (for example, near-shoring) or intensified efforts to bring home (such as reshoring) strategic value chains. The shortening of supply chains may benefit countries with capable manufacturing sectors and beneficial export policies to partially substitute China over the medium term. There may also be a trend towards placing additional warehousing capacity or dry ports near demand centres to shorten the time to get goods to market.”
