The shipping and logistics industries are currently facing unprecedented challenges. With Covid-19 having the greatest impact on how we travel and work since World War 2, the demands on logistics are greater than ever before. With people panic buying and leaving stores and shelves bare of essential supplies, the pressure on the companies manufacturing goods and those ensuring they reach the end users is immense.
Is the industry up to the challenge? And can lessons be learned from the Covid-19 crisis that can improve services in the future?
The number of cases and deaths globally from Covid-19 has led to closures of society at every level. Most airlines have suspended flights or plan to do so in the coming days. Non-essential workers have been asked to work from home or take leave, schools and universities around the globe have closed, as have many restaurants, bars, and entertainment venues.
But while much of the focus tends to be on the brave healthcare workers who continue to work, there are many other essential services operating, from supermarket shelf stackers to transportation and logistics managers.
Although a large percentage of the American population are self-isolating to reduce the spread of the virus, many others are soldiering on to ensure that vital food and medical supplies reach local stores and hospitals.
But that does not mean that it is business as usual for logistics and transport services. On the global stage, there are severe disruptions to the supply chain which are severely impacting the entire industry. With manufacturing virtually shut down in China – though with signs of restarting as the virus appears to be in decline there – and many other countries, international shipping is at extremely low levels.
In China, after the SARS epidemic of 2003, it took three to six months for most sectors to bounce back. But With Covid-19 having a far greater impact, that rebound may take far longer. And results will vary from sector to sector. This will be true globally, not just in China.
Impacts in the United States of America
What we are seeing across many sectors is a domino effect. Retailers in the U.S. are facing real challenges, especially with two crucial consumer buying seasons – back to school and holidays – looming closer.
And with an average of 20% of the supply chains American retailers depend on originating in China, the threat to small and large businesses has never been greater. Companies who rely on a larger percentage of their goods coming from China – shoemaker Steve Madden states that about 73% of their goods comes from China – face the very real threat of bankruptcy without government aid and bailouts.
Logistics services feel the effect too. Data from ShipMatric shows that parcel volume fell 2.4% from manufacturers in February with other sectors showing similar declines.
Logistics companies are facing additional challenges. The simplest way to describe how transportation management works is the management of getting goods from point A to point B.
More than 40% of America’s cargo is transported by road, and with the state and federal governments imposing harsher restrictions on movement by road, the truckers’ jobs are getting harder. At least one state has already closed its rest stops, removing a vital parking and resting factor on major transport routes, although they have since agreed to reopen some of them.
Truck stops have switched to takeout meals, and many shippers and receivers are refusing to allow drivers to use any facilities in their buildings. And some drivers are now refusing to drive loads to states with high infection rates as it can cause them problems later. The spot market – where last minute transportation is booked – has seen a 6.1% rise in prices since February 29th as demand has grown.
Prioritization is Key
Prioritization is becoming even more important in logistics during the Covid-19 crisis. The need to ensure that essential goods such as food, medical supplies, and fuel, reach the stores and supermarkets across America means that other goods have become low priority. The essential supplies also extends to many raw materials needed to produce essential items, and includes paper and plastic.
This has led to the The Federal Motor Carrier Safety Administration lifting some of the hourly driving restrictions on truckers who are transporting those supplies. They were able to do this because President Donald Trump has declared Covid-19 a national emergency and the need for timely delivery of these essential supplies is crucial to effective containment.
Before the crisis, most businesses could predict patterns in stock demand and movement. National historical patterns such as Easter, Thanksgiving, Christmas, and school holidays, etc., usually allow for an inventory management system to know when to order goods, especially when using a freight brokerage service to bring goods from international manufacturers.
Panic buying has varied according to location. The UK and Australia has witnessed chaotic scenes as consumers rush to stock up on toilet paper, pasta, and canned goods. The U.S. has seen mass buying of hand sanitizer, toilet paper, canned goods, and guns. Panic buying places pressure on every link in the supply chain, from the manufacturers to the shipping and transportation companies and store management and employees.
How to Respond
The pressure on all levels of the logistics industry, from customs brokerage agents to third party logistics providers, means that every part of the industry must respond to the challenges. And this is not only about finding short-term solutions to deal with the crisis. It is about putting things in place to aid recovery when the crisis is over and it is also about learning from the crisis to ensure contingency plans are in place should an event of this magnitude ever happen again.
Many industry experts look at the experience of the SARS epidemic to have an idea of what post-Covid-19 recovery may look like. And their views are mainly pessimistic for now, with many seeing recovery being difficult for the logistics industry after Covid-19.
McKinsey and Company carried out a detailed analysis of what actions could help lessen impacts from the current ongoing situation and also how those actions could be put in place in case of similar crises in the future. They identified six main sets of issues that need to be addressed.
- Create complete transparency in supply chains with multiple levels. Make a list of critical supplies and components, their current points of origins, and potential substitute sources.
- Look at available inventory at every level. This not only includes the primary items, but also any spare parts of after sales parts needed. This can help bridge any gap if some items are not being produced.
- Try and assess consumer demand. This may be particularly difficult with so much panic buying and stockpiling but even with those behaviors, there will still be some identifiable patterns.
- No matter where you are in the supply chain, make employee safety paramount. Provide employees with as much protection as possible and as relevant, including masks, sanitizer, goggles, and gloves. If you have multiple employees working on site, try and impose some distancing if possible. If any employee can work from home – such as administration staff – then put that in place as soon as possible. Have your HR department draw up and distribute educational material on minimizing infection risk.
- Identify and confirm your logistics capacity as it currently stands. Do you have to consider increasing to assist with distributing essential supplies or raw materials?
- Look at your cash flow and financial capacity. Have your accounting department run stress tests to identify potential issues and at what points in a projected timeline the crisis will have a real financial impact on your business.
Given the crisis is unlike anything we have faced before, criticisms that we have not planned for it are largely unfair. It is affecting every level of our nation, from education to supreme court hearings. How it will end – or continue – is still the subject of speculation from medical experts. Some think it may disappear altogether, while others think it may join the four existing coronaviruses that are now endemic.
One effect of the Covid-19 outbreak, and one that may become permanent after the crisis is over, is that vast amounts of people have moved to online shopping. This is something that the logistics and shipping industries need to look at and plan for.
On the micro level, it will increase the need for small commercial delivery companies who move consumer goods from warehouses and distribution nodes direct to the customer’s door. On a macro level, there will need to be changes as new distribution centers spring up.
If this shift to online shopping does remain after the crisis, then there should be no negative effects on the logistics sector. Raw materials will still need to get to manufacturing plants. Finished goods will still need to get from the many global points of origin to the distributors and large online retail stores. Some adaptation will be needed but there should be no real change in how our sector’s businesses operate.
It may be slightly ironic that we should be learning lessons from China, but how their manufacturers, distributors, and indeed logistics companies have responded to Covid-19 is certainly what we should be looking at in the U.S.
Companies that responded quickly and proactively to the outbreak are the ones that are recovering the fastest. One major instant noodle and beverage producer moved quickly to shift its focus from traditional retail outlets to online orders as well as keeping track of traditional outlets’ plans to reopen. This meant they recovered by more than 50% within just a few weeks of the outbreak starting, and they were also able to supply 60% of their retail outlets that reopened in the same period, a figure three times greater than some of their competitors.
At the forefront of China’s quick recovery is digital technology. China is way ahead of the U.S. and Europe when it comes to e-commerce. In the U.S., only 16% of all sales in 2019 were by e-commerce, yet China passed that figure in 2015. There are two major factors that have allowed China to lead the way and these are lessons that our industry must learn too.
- Swift delivery and digital based systems. In almost any major Chinese city, many items bought online can reach your home in under 30 minutes. Digital based systems such as Alibaba’s Cainiao network uses an AI based inventory system which links the physical world of merchant’s actual stores and locations with the end users who are ordering online. This allowed Alibaba to ship medical supplies, food, and other essentials into Wuhan within hours of the city being put on total lockdown.
- Consumer acceptance and comfort. The various online giants in China have transformed how people think and shop. Part of this comfort and ease of transition is down to so-called “super apps.” Whereas the U.S. tends to develop single-use apps, China and other countries such as India have focused on these super apps which can not only dominate a relatively small geographic area, but can also allow group purchases for communities such as residents of a condo block.
China’s e-commerce market now accounts for around 36.6% of all retail sales and 71% of Chinese consumers have made an online purchase at some point. While the American public may be comfortable with ordering from Amazon, they are more hesitant when it comes to smaller online retailers. Changing that mindset may be a crucial part of our economic recovery and future.
Given the success of Alibaba and other online companies in maintaining supply chains and supporting their third party merchants, it is perhaps surprising that Amazon has chosen to suspend delivery services for their own third party sellers. While prioritizing medical goods, bay supplies, and food is understandable, the impacts on smaller third party merchants may be something these merchants cannot recover from.
The boom in online demand is providing a major boost for Amazon too, with the company looking to hire an extra 100,000 workers and also raising their basic hourly pay. While this is certainly good news for Amazon’s income, it may have long-term effects on small retail outlets as Amazon increases their monopoly.
As an industry, we should take heart from the speed at which China is recovering from this pandemic. While our primary focus should be on ensuring a steady supply chain of essential goods and raw materials, we should also be considering whether any changes or adaptations we make now should be permanent.
And while it is impossible to forecast an exact end to this crisis, that speed of recovery in China is encouraging. Less than eight weeks after the initial outbreak, many sectors are bouncing back and are close to pre-lockdown levels.
One thing that is crucial is maintaining the highest levels of customer service. Letting customers know if there are delays to their shipment due to the crisis is of utmost importance. Phone calls keep communication personal but also consider social media for making more general announcements.
That high level of communication should also extend to all staff. In this time of uncertainty, let them know about job security and about the precautions your company is taking to minimize the risk of infection. Similarly, if you have an extended network of partners you work with for shipping within the U.S. or globally, then keep in contact to share updates.
The logistics and shipping sectors are essential cogs in the machine.
There is no doubt that this is the greatest challenge our industry – or any other – has ever faced. While the logistics challenges posed by World War II may have been more dangerous, the fact that this is now a global crisis means that we have to analyze, adapt, and innovate.
Some commentators say the world will never be the same again but that doesn’t have to mean it won’t be a better place. For the logistics industry, this could be a major learning experience and one we can use to improve many aspects of how we work and how we plan.
If you are experiencing any logistics issues at this time, Asiana USA is constantly reviewing our supply chains during this quickly evolving crisis. If you have any questions, or if you need essential goods transported, contact us at (855)-500-1808 for more information on how we can help you and to request a quote.