Understanding the Impact of COVID-19 on the Supply Chain

The COVID-19 pandemic has caused unprecedented global supply chain disruptions. As the epicenter of the outbreak shifted from China to Europe and North America, these major disruptions have spread globally, resulting in sharp declines in trade and demand. 

In order to succeed in a post-coronavirus world, businesses across almost every industry have put new supply chain risk management strategies into place and established new operating procedures. A recently released report from Frost & Sullivan highlights the way the COVID-19 pandemic related forces that are reshaping the business ecosystem1:

1. Plant closures have resulted in a sharp decline in economic activities.
2. Cargo capacity challenges have resulted in an increase in air and ocean cargo rates.
3. Stimulus initiatives are focused on reviving consumer demand, providing financial support to manufacturers, improving export performance and supporting COVID-19 relief efforts.
4. Air-travel restrictions have forced shippers to look for short-term service providers with adequate capacity to move goods.
5. Cross-border delays and travel restrictions have resulted in the closure of certain land borders, leading to congestion at road and sea ports and limiting the movement of raw materials.
6. Business continuity plans have shifted to focus on identifying potential disruptions and workforce safety.
7. Demand supply shocks as a result of limited the exports of parts have in turn resulted in a significant decline in global trade.
8. Customer engagement has become a priority to enable increased visibility and communication. 
9. Risk monitoring systems will provide key inputs for the development of contingency plans and crisis management strategies.

"What started off in China has become a significant challenge for Europe and North America, with more than 80% of incidents happening in those regions. Needless to say, this has created a new demand and supply shock on top of today’s norms of plant closures, cargo capacity challenges and other shortages. These shocks have resulted in emergency response systems and stimulus initiatives by the government. All of these forces are driving a changing business scenario," said Gopal R, vice president and country head, Malaysia, Frost & Sullivan. 

In this new environment, companies must prioritize actions to overcome the current challenges and develop recovery plans to build pipelines for growth.1 This is especially true for providers in the transportation and logistics industry, which has been significantly impacted. Transformative digital strategies and technologies have emerged as critical tools to help companies weather the next  stages of the COVID-19 outbreak, and will help  enable future growth. 

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COVID-19: An Industry Wide Crisis with Differing Impacts

The scale and speed of the impact of COVID-19 has been felt across almost every industry in the global economy. Factors such as the economic slowdown and low export demand, downsizing and pay cuts, low investor and consumer confidence and changing consumer behavior (e.g. digital-ready consumers) have all affected demand.¹

However, these impacts range from negative, to marginal and, in some cases, positive. According to Frost & Sullivan, the aviation, hospitality and luxury retail industries all felt the immediate impacts of  regional and national lockdowns that have helped slow the spread of COVID-19, and are still struggling with cash flow issues. However, agriculture, utilities and pharmaceuticals suffered a more marginal impact, with many providers surviving the crisis. Finally, industries such as digital media, food and consumables and healthcare services felt a positive impact—and many of these providers are currently thriving. 

A Unique Scenario: The Logistics Industry 

Frost & Sullivan has categorized the logistics industry as one that has seen “marginal impact” as a result of the pandemic. Although considered an essential service, the global slowdown and lower business confidence will continue to have an effect on the industry in 2020—but it should survive.1 This survival is very much dependent upon logistics providers taking a proactive approach to mitigating future supply chain risks and disruptions

“The transportation and logistics industry growth is usually in sync with GDP growth. Even in the most optimistic scenario, the IMF predicts a global economic growth rate decline of 3% in 2020 and a recovery by 5.8% in 2021,” says Gopal. “For logistics, growth would decline 4% in 2020 and recover at 8% in 2021.”

Ocean freight, air freight, road freight and warehousing providers each face unique challenges to operations and growth. Port congestion, workforce safety and space constraints are just a few of the issues ocean freight companies face; while air freight must contend with issues like reliance on belly cargo and increasing demand for time-critical cargo. Likewise, road freighters must contend with driver shortages, border delays and road congestion.

By redesigning processes and solutions, logistics service providers can mitigate the risks related to the current pandemic and be better prepared for future disruptions. According to Frost & Sullivan, some of these strategies include:

• Advanced booking systems for air and ocean freight to help foresee at least six months. 
• Intermodal solutions to address air freight capacity constraints. 
• Dashboards to keep customers informed of vital information such as border closures. 
• Automation of warehouse operations to reduce dependency on the labor force and shorten lead times. 

"Even amidst these growth challenges, logistics providers have put into place mitigation measures to help beat air and sea freight capacity challenges, warehousing issues and the ongoing lack of manpower. These providers have played their part in providing cost cutting measures, rental relief and so many different things," says Gopal.

It's also imperative that the logistics and transportation industry embrace digital as the new reality. Specifically, as there is an increased focus on operational efficiency, digital integration will gain significant traction as global trade starts rebounding. Providers that prepare now by implementing advanced digital supply chain management solutions will be well-prepared to meet the future. 

Digital Transformation Plays a Role in the Shaping the Future of Logistics

Embracing changes in business processes includes implementing digital technologies and better collaborating with technology providers. Digital transformation can play a role in helping logistics providers: 1

• Build capabilities and flexible capacity by collaborating on digital platforms to expand coverage and industry solution offerings
• Strengthen regional and global links via collaboration with digital freight platforms and other regional service providers 
• Improve customer engagement and retention by collaborating with key clients to understand specific requirements and the nature of bottlenecks, which will help them fine-tune traditional logistics solutions offerings 

Digital platforms also allow logistics providers to optimize asset utilization. Traditionally, the industry has been plagued by efficiency issues caused by empty miles, empty containers and the underutilization of assets. An open digital platform allows providers to offer services and share assets. 

COVID-19 has also underscored the importance of real-time visibility into everything from warehouse space availability to supply chain transparency. GPS-based tracking software can help providers get a better sense of which assets are being used, at what location and in what way. These digital solutions help increase asset utilization and lower costs. 

Digital transformation will also improve the collection and analysis of data, which can then be used to drive insights into resource optimization, pricing, risk management and a better customer experience. 

Advanced GPS fleet tracking software provides deeper visibility into fleet operations, enabling logistics providers to analyze their fleet’s performance, increase productivity and lower overall costs. 

Gopal says, “These are some of the transformations logistics providers must embrace to be in a position to build visibility, build capability, be more flexible and make better use of data. Doing these things and gaining better visibility with data will allow providers to plan a risk mitigation strategy. That’s the whole point.”

Find the latest COVID-19 industry updates here.

1Source: Post-Pandemic Growth Opportunity Analysis in the Logistics Industry by Frost & Sullivan