The emergence and spread of Covid-19 in the past two years resulted in massive global disruption of economies and business and it also revealed the fragility of universal supply chains. The fragility displayed by the emergence of Covid-19 can be linked to the sudden scarcity of resources, disruption of production and transportation as well as social distancing rule and other covid-19 measures (Paul et al., 2021). Logistics and supply chain management are very critical components of any business or organization. An effective logistic and supply chain system results in increased efficiency rates, improved customer relationships, quality over control, increased reduction in the cost of production, faster cycles of production, and generalized improvement in the financial performance of a business/ company. This paper gives an in-depth analysis of the impact of Covid-19 in the logistic and supply chain management sector and also gives insight into strategies that can be implemented to mitigate the impacts.
Governmental policies to mitigate Covid-19
The declaration of Covid-19 as a pandemic that occurred in 2020 resulted in different governments implementing several measures that targeted the reduction of the spread of the virus. These include social, distancing, movement restrictions for both on land and air freight, closure of some borders, working from home, curfews among others. These measures resulted in a greater impact on the logistics and supply chain sector. The majority of the companies experienced a shortage of staff due to the social distancing rule that limited the number of people working on a premise. Some international workforce could not travel back to their workplace due to the measures and the recruitment process was also halted or minimized in some companies. Some market and delivery routes were restricted by the measures thus preventing the exchange of resources which is a great component of the supply chain (Goel et al., 2021). This meant that business remained limited to the open routes and therefore not all resources could be retrieved thus limiting the functionality of the sector. The restrictions also resulted in a rapid change in customer behavior as well as their patterns of buying. In majority of the countries, customers only bought essential products leaving behind other products. Other companies reduced their production capabilities intending to minimize losses.
Disruption at the Global Hub of Manufacturing-China
The pandemic started and Wuhan and as a result, it made China the epicenter of the Corona virus. China contains more than 200 fortune 500 companies and the disruption with the implementation of the measures meant that the production of these companies and the others linked to it in international markets were affected. It is also paramount to note that China with its huge population, is among the greatest consumer of different commodities from different regions of the world. At China’s port, the majority of the cargo was backlogged, travel restrictions resulted in a reduced supply of truck drivers responsible for picking containers at the port, and ocean carriers discontinued or blanked their sailing responsibilities. This resulted in an impact on global markets due to their inability to receive necessary components from China. Despite the resumption of activity in February 2021, the majority of the companies are yet to start operating at full capacity meaning the impact will continue to be felt.
In China, the main transportation system is the long-haul trucking sector and it is estimated to carry approximately 80% of all the goods in the country. It is reported that between January and February 2020, the long-haul trucking volumes drastically fell by 15% (Liu et al., 2020). The rise was only a result of the ability of the chinses government to quickly contain the virus and the laid policies to ensure that trucking services continue.
Drop-in freight Capacities
The drop in demand from different regions due to changes in consumer behaviors resulted in a significant drop in freight capacities. It was reported that in Chinese ports, the total volumes of containers being handled dropped by a significant 10.1% between January and February 2020 (Liu et al., 2020). DHL reported in early 2020 a significant drop in demand for products which affected routes between Europe, Latin America, Asia, and United States. The company also reported the occurrence of blank ailing due to the impact of the virus (Atayah et al., 2021). Land freights were not significantly affected except in countries with lockdown measures. The transport of agricultural and medical products continued undisrupted bit was greatly impacted by the insufficiency of the workforce and as a result, there were increased rates of the products. The overall land freight charges significantly increased due to the factors like increased air cargo freight rates, a longer time for transportation of cargo, and blank sailing. Additionally, the demand for rail rose significantly as the different organizations tried to reduce the expenses incurred. Airfreight volumes reduced significantly by an approximate 19%in March 2020 which was attributed to the reduced manufacturing in China and reduced passengers’ flights (Liu et al., 2020). The majority of the people reported to air freight for transportation of their goods which led to increased rates and congestion of airports. The congestions resulted in increased delays in the supply of goods to customers.
Increased Rates of Supply and Transportation
As stated earlier, the reduced manufacturing and production in different companies resulted in the reduced movement of products. This was further worsened by the travel restrictions. To counter the impact and remain profitable different logistics and supply chain organizations were forced to increase their rates to match their expenses and to ensure profitability is maintained (Goel et al., 2021). Additionally, to ensure sustainability, partnerships had to be formed between traders, especially between manufacturers and supply chain and logistics companies. This served the purpose of ensuring continued activity and the formation of contracts that will minimize the impact of inflated transportation costs.
Increased Layoffs
Changes in customer behaviors had a huge hit on logistics and supply chain management. This is because the majority of the sectors were hit by the Covid-19 measures like lockdowns and restrictions hence reducing their demand for some products. Few sectors like agriculture and the medical sector had a significant increase in demand. The changes in customer behavior meant a reduction in workload and this prompted the dismissal of some employees in some sectors e.g., the airlines and shipping companies. Furthermore, layoffs were made mandatory due to the rapid increase in operating costs and low turnover rates (Atayah et al., 2021; Paul et al., 2021). The measures of working from home and social distancing resulted in increased layoffs in companies that lacked the necessary infrastructure to support the system.
Demand Risk
In some sectors e.g., the medical and agricultural sectors, there was a significant surge in demand. This is seen in the instances of panic buying that occurred in early 2020 and the drop in the availability of tissue papers. The demand risk posed a great problem to the supply chain by overwhelming the capacity of some local suppliers. This disruption affects the operations of the suppliers as well as the demand and is linked to the increased charges of certain commodities as the supplies try to increase their operational capacity to meet the local demands (Goel et al., 2021). The demand risk resulted in the need to increase the storage capacities, which were already being overcharged, and increase their negotiations with other traders to help meet productions and supply to consumers and all this impacted the price of the product to the final consumer.
Labor Shortages
The logistics and supply chain sector greatly depends on the supply of affordable labor to enhance the movement of resources between traders. Some of the key areas that were affected by the emergence of Covid-19 include transportation (hauling, truck driving, and flight attendants), port terminal operators, non-vessel-Operating Common Carriers (NVOCCs) seafarers, freight forwarding, and warehousing. The restrictions implemented by governments prevented free movement of people which limited the supply of laborers in the logistic and supply chain sector.
Mitigation strategies
To mitigate the problems, companies need to adopt smart logistics which targets the reduction of cost and maximizing profits. Smart logistics presents the advantage of enhanced management and execution of the physical flow of products from the suppliers to the consumers. Another solution is the implementation of AI-Driven logistics and supply chain management. This strategy allows efficient decision-making and gives room for the development of systems that autonomously adapt to changes around the globe. Partnerships should also be encouraged between companies to enhance easy coordination of activities and reduced the likelihood of losses due to uncertainties. Lastly, governments should implement policies that ensure the continuous supply of resources to traders while looking into ways to quickly eradicating the virus e.g., through mass vaccination and implementation of measures like handwashing, use of sanitizers, and face masks.
References
Atayah, O. F., Dhiaf, M. M., Najaf, K., & Frederico, G. F. (2021). Impact of COVID-19 on financial performance of logistics firms: Evidence from G-20 countries. Journal of Global Operations and Strategic Sourcing.
Goel, R. K., Saunoris, J. W., & Goel, S. S. (2021). Supply chain performance and economic growth: The impact of COVID-19 disruptions. Journal of Policy Modeling, 43(2), 298–316.
Liu, W., Liang, Y., Bao, X., Qin, J., & Lim, M. K. (2020). China’s logistics development trends in the post COVID-19 era. International Journal of Logistics Research and Applications, 1–12.
Paul, S. K., Chowdhury, P., Moktadir, Md. A., & Lau, K. H. (2021). Supply chain recovery challenges in the wake of COVID-19 pandemic. Journal of Business Research, 136, 316– 329. Web.