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Perspectives on the markets and economy for logistics sector

Perspectives on the markets and economy for logistics sector

Logistics & Supply Chain

Wadhwani Foundation

Wadhwani Foundation

8 Jun 2020, 09:40 — 4 min read

Logistics is naturally devasted by COVID-19 as it is one of the most physical of industries. The business in April for most transportation companies was down anywhere from 70% to 95%. The lockdown was extended for 30 major cities that account of majority of logistics hubs and warehouses.

Thus, there will be a very severe impact on logistics industry as we move forward. 

Transportation

Despite the easing of restrictions in green and orange zones, as on May 15, less than 20% of the fleet of over 10 million commercial vehicles is operational on ground. Over 5 lakh vehicles with inventory are estimated to be on road or parked at warehouses. 

The ports have major congestion due to unavailability of trailers and containers to move exports as imported material is stuck at Container Freight Stations and ports. 

Forward Path

  • Transportation will be erratic for at least 2-3 months with preference given to essential cargo and FMCG
  • Acute driver shortage is now exacerbated now by migration of labor to their native regions. This will mean companies may need to wait for 2-3 days to get a vehicle.
  • Commodity rates are likely to go up as diesel prices have been increased by many states. More demand may chase artificially less supply, which will lead to transporters charging premium prices at certain locations.
  • Working capital has always been an issue for Transporters and as unorganized sector they cannot raise large credit easily. Companies that need movement may need to fund the transporters to operate. 
  • Local distribution will be hampered due to restrictions such as containment zones, limited opening timing, erratic demand from retail trade. 
  • Loading and unloading will be a major issue due to lack of migrant labor in many metro locations and lack of automation at warehouses

Also read: An unprecedented challenge, also an opportunity for SMEs to do unprecedented things

Warehousing

Warehouse fate is closely related to transportation. Most warehouses are full with inventory and due to offloading of cargo that was stocked after lockdown. 

Forward path

  • Warehouse will face acute labor shortage due to migration of labor and thus order fulfillment time will go up by at least 30-40%
  • Due to unavailability of vehicles, warehouses may not be able to dispatch orders and this will result in lack of inventory at retail level
  • Metros account for major chunk of product consumption as well as provider of warehouses space. However, major metros such as, Mumbai and Delhi are likely to come out of lockdown slowly, in phases.
  • Smaller cities may take up the slack but due to the lack of warehousing infrastructure, will require more transportation costs to get material to fulfill demand.

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Source: Apurva Mankad

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

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