The Overarching Impact of COVID-19 on Supply Chains

The Overarching Impact of COVID-19 on Supply Chains
Author PhotoBlueGrace Logistics - May 6, 2021

The COVID-19 outbreak has had profound impact on global freight networks and having far-reaching implications on the overall global economy. While social distancing norms are still in place across the transport industry, trade volumes have continued to skyrocket—mounting a challenge to the resiliency of the supply chain.

The pandemic has also increased the volume of e-commerce trade. Changing consumption patterns and record import volumes have caused additional challenges such as container shortage and port congestions in the industry.

Relief in the form of new supply has not materialized in the current market.

These factors have resulted in higher costs and lower service levels for shippers. Demand for transportation capacity has sustained record highs for nearly a year since the initial COVID-19 lockdowns. While there are several demand cycles operating in the transportation industry, supply typically catches up to sustained increased demand over time.

Relief in the form of new supply has not materialized in the current market. Equipment shortages, driver shortages, competition from other industries and new regulations have limited the balancing of the supply and demand equation that normally rights the cycle.

COVID-19 Revamps The Logistics and Supply Chain Industry

Consumer demands have changed drastically since the pandemic struck, which has impacted the way goods are shipped and transported.

Manufacturers are struggling to keep up with the increased demands of selected products such as disinfectants, medical supplies, groceries, and paper goods. This has further caused operational bottlenecks in the pipelines, resulting in delivery delays and congestion. Increased demands have spiked freight rates too.

However, not all segments have been impacted equally. For instance, online shopping of essentials has increased the burden on e-commerce companies, but companies that serve the restaurant and event industries have seen dramatic declines in demand.

China, a major consumer of global commodities and agricultural products, was the first to shut its borders and impose lockdowns due to the virus. Manufacturing disruptions in China echoed across entire global supply chains, resulting in the shortage of a variety of products. This impacted global manufacturing operations in automotive, electronics, pharmaceuticals, medical equipment and supplies, and consumer goods industries.

While Chinese manufacturing saw an uptick by the beginning of March ‘20, the situation worsened across the rest of the world.

While Chinese manufacturing saw an uptick by the beginning of March ‘20, the situation worsened across the rest of the world, prompting lockdowns and an inevitable breakdown in freight movement. The additional protocols deployed contributed to further bottlenecks for the freight industry. The industry observed its impact on the freight capacity management of three critical global transportation segments—ocean, land, and air.

The demand for ocean freight increased, causing container shortage in Asia-Pacific lanes. Freight rates skyrocketed as carriers dictated the market. Further, container shortages became the cause of several rollovers in Europe, resulting in significant overall delays in the holiday season. The decreasing port efficiency and increasing demand ultimately resulted in port congestions and bottlenecks.

In the present-day scenario, air freight plays a critical role in the distribution of Covid-19 vaccines.

Similar effects were observed in air freight, where unstable inventories and container shortages further increased demand already pushing new highs due to increased consumer demand. Air carriers retrofitted passenger planes to carry cargo inside the cabins and transport lightweight, essential items such as masks and other personal protection equipment. In the present-day scenario, air freight plays a critical role in the distribution of Covid-19 vaccines.

Even during uncertain times, trucking remained a modality that stayed operational across the globe—except in countries under severe lockdowns. Accumulating regular demand and additional demand for services, especially food and medical supplies, strained truckload capacities. Covid-19 related restrictions reduced employee availability. The surge in demand and tight capacity availability resulted in higher freight rates.

Crisis Management

In these times of unprecedented crisis, most governments stepped in and designated ports, shipping, and trucking services as essentials and exempted them from lockdown measures. Airports around the world closed to passenger flights but were kept operational for cargo movement.

Governments and 3PL companies collaborated closely to address supply chain bottlenecks and facilitate faster clearances. Transportation companies, in turn, formed new safety protocols and arranged for intermodal transport to adapt to changing demand.

Pre-COVID — Stakeholder’s Perspective For A New Normal

Management consulting firm McKinsey surveyed over 60 senior supply chain executives from across industries and geographies and found that:

  • 73% of them encountered problems such as shortages in their supplier base
  • 75% faced problems in their production/distribution footprints
  • 85% struggled with insufficient digital technologies

Consequently, a long-term shift in mobility patterns might emerge when governments across the world lift restrictions.

The transportation industry was already undergoing a digital revolution. Investment in digital freight brokerages, TMS platforms, visibility tools, data capture and analytics platforms were already occurring at staggering levels. The pandemic will further push the industry to take a significant step in the world of digital transformation as these unusual times have strengthened the need for replacing paperwork, reinforcing standards and interoperability.

Many companies have already started investing in digitization and automation opportunities—such as issuing digital copies instead of paper invoices, encouraging more electronic payments, and customs automation. Such digitization activities have helped increase the pace of international trade.

Digitization will also optimize production and distribution capacity.

While digitization is the need of the hour to stay competitive in the industry, its flip side is that it comes with increased cybersecurity risks that will require authority intervention in the future. Such pitfalls need to be handled carefully since digital solutions, if appropriately implemented, will result in a plethora of benefits. Digitalization results in multi-tier transparency across supply chains, inventory management along the value chain, better dialogue with consumers, shipping automation, and highly effective returns processes. Digitization will also optimize production and distribution capacity by identifying and securing logistics capacity through proper estimation and improving flexibility for intermodal transportation.

The pandemic has had a protracted impact on supply chains, with stakeholders needing to adapt to demand volatility and sky-high freight prices. Technology will continue to make inroads within the logistics industry as companies expand on their digital capabilities. Risk management, change management and operational execution have never been more critical in the industry. The future post-Covid will belong to companies that look to build resilience into their operations.

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