How COVID-19 changed logistics
The COVID-19 pandemic presented all sectors with unprecedented obstacles but perhaps none more so than the transport and logistics industry. What were these challenges, and how did companies overcome them?
The far-reaching effects of the pandemic
According to Trade Economics, 80% of global trade is facilitated by commercial shipping and any interruptions in the transport and logistics (T&L) sector disrupt overall supply chains. Every facet of the T&L sector was directly affected as a result of the travel restrictions imposed by governments to curb the spread of coronavirus.
DB Cargo found that road transport was the most deeply affected sub-sector of the T&L industry. Roadblocks between borders meant delivery delays and a shortage of drivers owing to mandatory quarantine periods. Air and ocean freight was similarly affected by border closure. Lexology notes that in China, ocean freight saw a 10% decrease in volumes and a 20% decrease in air freight. Interestingly, train freight suffered less than the aforementioned transport methods.
How T&L companies can adapt
Given that government policy beyond the sector's control dictates much of how T&L companies operate, they must find innovative means by which to ensure their survival and success. Here's how:
- Reallocation of sources: adapting and rebalancing portfolios helped T&L companies survive the pandemic. One such example is the use of passenger planes as cargo planes.
- Diversifying transport methods: some T&L companies turned their attention to train freight. Trains can transport more goods relative to the number of employees required to conduct transportation.
- Diversifying supplier locations: it was found that companies who began using suppliers from more regions fared better during the height of the pandemic. By outsourcing to local suppliers rather than international suppliers, companies successfully navigated the issue of national border closures.
- Digitalization: arguably the most effective method to overcome the challenges presented was the technological overhaul of T&L companies. As Anabel Gonzalez, Deputy Director-General of the World Trade Organization, explains, "The building of logistics resilience in post-COVID recovery cannot do without embracing automation and digitalization." For example, Chinese company JD made use of the internet of things (IoT) to track shipments and accelerate communication among all parties within their supply chain
McKinsey has identified four key areas which will benefit from advanced digitalization:
- Employees: leveraging digital technology will improve the efficiency of workplace management tasks such as the recruitment and management of staff
- Internal processes: using digital tools will improve the "performance of core operations" such as identifying any operational failures.
- Supply bases: by digitizing product or material procurement, T&L companies are better able to ensure their purchasing processes are effective and efficient.
- Networks: by employing digital tools such as modeling and analytics programs, companies can overcome network problems more effectively. These tools can also help companies identify potential future issues.
By incorporating one or more of the above strategies, T&L companies can improve their chances of success in the face of nearly, and perhaps every, obstacle beyond their control.