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Logistics Industry Divided Over Coronavirus Impact

It is not easy to decipher which one of the two opinions is more justified.

Logistics Management

The logistics industry is broadly divided into online delivery, overseas freight, and air cargo. All of these sectors are battling unique challenges as the virus has spread to almost 177 countries. 

There are two different points of view.

  1. One set of experts believes that the significantly higher market share of online shopping today compared to the SARS outbreak in 2003 might help reduce the economic impact of the Coronavirus on the logistics industry.
  2. On the other hand, some experts believe that since fear is the leading cause of economic disruption, customers might get scared into tightening their spending if the epidemic continues. 

It is not easy to decipher which one of the two opinions is more justified. However, logistics businesses worldwide are seeing the negative impacts of the Coronavirus due to the following reasons: 

  • A marked reduction in the movement of raw materials and finished goods from, or routed through, impacted areas.
  • A shortage of white and blue-collar labor due to illness or quarantine guidelines.
  • Global supply networks and regional hubs are experiencing capacity limitations so even if raw materials are available, they are getting stuck. Since the Coronavirus is a global pandemic, finding alternative routes is difficult.
  • Customers are more cautious in purchasing non-essential items due to fears about potential exposure to the virus. The majority of customers are turning to online shopping, further burdening the logistics networks. 

According to a report by The Harvard Business Review, logistics managers should map their processes and identify critical suppliers that are ‘at-risk.’ Any uncertainty should be used as an opportunity to redesign their processes and identify backups. 

Let’s Talk Numbers

To reduce the spread of the virus, several shipping companies have curtailed the number of vessels going in and out of China, which means sea trade routes between China and the rest of the world are being restricted. According to one report, this restriction is responsible for more than $350 million in losses each week in shipping alone. 

With seven of the world's ten busiest seaports being located in China, global shipping is experiencing a significant slowdown. Due to the lockdowns, sea vessels are not allowed in the ports, delaying the loading and discharging of goods. Some ships are stuck in dock waiting for workers to return to ports, while others are in quarantined zones. Countries like Australia are refusing to allow ships into their ports that are coming from or through Chinese ports. 

However, it’s not just shipping that’s getting impacted. According to the Institute for Supply Management (ISM), almost 75 percent of U.S. businesses have experienced disruptions in their supply chains as a result of the Coronavirus outbreak, and it’s spreading from seaports to air cargo, and from railroads to trucking. A slowed-down Chinese economy is sending ripples from the sea to the sky. 

To earn some revenue and help ease freight bottlenecks, some carriers, including American Airlines, Qantas, Delta, Korean Airlines, and Deutsche Lufthansa, are putting their passenger planes to work as freight aircraft. The strategy is to keep the main cabins empty and fill the belly with cargo shipments. 

There has been a drastic drop in the rail cargo movement as well. According to another report, the number of trains moving goods from Los Angeles and Long Beach to Chicago has dropped from 50 trains a week to 25. 

The trucking sector is in a dilemma. Though the sector is feeling the pinch of lower volumes, it is also experiencing a few temporary spikes in demand. The peaks are due to customers are stockpiling, and store owners needing to replenish their stock frequently. 

New Jersey recently restricted non-essential retail businesses to close by 8 p.m. This is expected to increase further delivery problems for companies that receive shipments and trucks after regular working hours. Driver shortage and retention could become an even bigger issue, as restrictions on delivery times are likely to complicate work schedules. 

Therefore, the challenge is to serve more customers in fewer work hours. One reliable way to reduce both driving time and distance is to use a multi-stop route planner, which helps plan optimized routes that factor in traffic congestion, road conditions, weather predictions, as well as your customer’s preferred delivery time windows. 

Several international courier companies are also cutting down on their routes.

  • Deutsche Post DHL recently announced that it took a $70 million hit on operating profits in February due to the Coronavirus. The company has also suspended pick-up, delivery, and warehousing services in the Hubei province in China.
  • USPS won’t accept mail that is either destined for or transiting through Hong Kong, China, or Macau.
  • Lufthansa is considering using idled passenger aircraft for freight-only flights. As part of its measures to respond to the Coronavirus, the German airline revealed a plan to cut existing capacity by 95 percent. 

The Coronavirus pandemic has caused a logistical slowdown. Though it is still too early to quantify the full impact, backup plans are essential. Once recovery is underway, the logistics sector is expected to experience catch-up demand when goods that have been stuck along supply chains will be delivered. 

Dan Khasis is the CEO and Founder of Route4Me, a global route optimization software company.

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