Case study:

COVID-19's Impact on Logistics Creating Ripple Effects in Other Industries

The impact of the COVID-19 pandemic on the global logistics industry is creating ripple effects that can be felt across every other industry. Supply chains are under increasing pressure as the free movement of goods become more restricted due to lockdown measures implemented by governments around the world.

The logistics industry's response to the pandemic will greatly influence how well other sectors of the economy are able to adapt to our new reality.

The sector forms the backbone of global trade and is fundamental to the effective running of most other sectors. Any disruption in the sector has ripple effects on the performance of other sectors. For example, a shortage of fibre components affects Internet service providers' ability to onboard and retain customers, and if those customers are businesses, their ability to remain productive and connected to their customers during lockdown is negatively affected too. And so the ripple effects cascade across industries and affect businesses big and small in significant ways.

The impact of COVID-19 on the logistics industry was first observed in China. According to the International Finance Corporation, disruptions to China's manufacturing industrycreated ripples across global supply chains. With backlogs at the country's ports, travel restrictions affecting local transport mechanisms, and many cargo ships prevented from vessel berthing and unloading of goods from vessels coming from different countries, global industries suddenly experienced a shortage in commodities and goods. Freight forwarding companies are also concerned that the extended costs of storage is impacting their ability to collect and dispatch goods around the country quickly.

This was most acutely felt in the global shortage of protective personal equipment. Since China supplies 60% of the world's exported goods, the sudden halt in production has left many industries short of the essential components they need to not only operate effectively, but also weather the economic storm brought by the pandemic.

In South Africa, the impact of the pandemic has impacted companies such as Transnet, which, with only 50% of staff operational, have been able to make barely 60% of its forecast revenue during quarter one. In June, Transnet was operating with only60% of the Cape Town port staff.This forced some exporters to transport goods hundreds of kilometers away or risk millions in lost revenue as well as severe reputational damage.

In the case of fruit exporters, many trucked their goods cross-country to Port Elizabeth and, in some cases, as far as Durban - 1 635km away. As one industry member commented, if your fruit arrives a week or two late, the market opportunity is already gone. What's more, the reputational damage caused by not delivering to schedule could undermine local producers' recovery efforts in the months to come.

The global supply chain was already under pressure before the pandemic emerged. A renewed risk of trade wars, increased tendencies towards protectionism, and issues of sustainability all put pressure on an industry at the core of global trade.

There has been increased interest in logistics start-ups from the venture capital community, indicating growing awareness of the urgent need for major changes in how the sector operates. In the last six years alone,venture capital investment into logistics start-ups grew by 76% compound annual growth rate, topping $28 billion dollars between 2015 and 2020. The pandemic is likely to accelerate this investment as more companies adapt to the disruptive effects of the pandemic and other macroeconomic challenges.

Source: Samantha Naidoo, Logistics Industry Value Advisor at SAP Africa (Aug 31, 2020)

QUESTION:

It is suggested that the industry make major changes in order to thrive in this challenging situation. you are required to propose three such changes that are needed in the logistics industry.