Disruption in Global Logistics & Supply Chain and Fight Back Strategies for India.

Supply-chain transparency and visibility, risk-mitigation and seamless logistics management is sought with the help of latest technologies.

The corona virus pandemic has now stayed with us for a year, and the uninvited guest has caused disruptions world over affecting several industries, sectors, businesses and consequently the lives of people. We could witness drastic flipping and dooming of the biggest economies of the world, making everyone resort to the defensive mode. The pandemic has overpowered and side-lined almost every other grave affair and occurrences. The lifestyles and working styles of individuals and organisations have taken the curve we have not seen in decades. We have seen some most booming sectors like travel, hospitality, retail, etc unprecedently doom in this year. 

LOGISTICS & SUPPLY CHAIN

One such sector that beholds serious disruption is the logistics and supply chain. The sector was badly impacted in the initial months of the pandemic cognizance. The global lockdowns had caused severe hindrances to logistics movement, be it by air, ocean, road, or rail. During the initial days of the pandemic, the supply chain faced almost a halt situation although there was a slight acceleration in most countries after the lockdowns were lifted. The exigent impact of the pandemic on the global trade has caused an expected contraction of almost 4.3% on the global GDP in 2020 as per UNCTAD. The merchandise trade has slumped by almost 18% year-on-year as compared to 2019. Owing to the growing globalisation and the dependency of the nations on one another, the demand for global trade movement is something that would never cease in any circumstances. Hence, the global trade resumed. However, due to the aftermaths of the pandemic, prolonged lockdowns and worldwide restrictions, the logistics and supply chain sector is entangled with irregularities and complications that are yet to be streamlined.

AIR FREIGHT

If we speak about the logistics through air freight, most of the passenger flights across the world are grounded as the passenger travel is still not back to normal. There is no scheduled movement of flights. Most of the air carriers are operating ferry flights, rescue flights, cargo aircrafts wherever feasible, and passenger flights for movement of cargo. This scenario has led to a serious reduction in the cargo capacity by air or belly capacity. As per IATA, belly capacity for international air cargo reduced by more than 70% during the pandemic. The belly capacity share is almost 40% of the total global capacity, measured in available cargo tonne-kilometres (ACTKs). The remaining 60% of air cargo moves on Cargo aircrafts. The IATA figures suggest that there is an average slump of almost 32% in the ACTKs as compared to previous year.

This non-operation of scheduled flights has severely affected the turnover of many airlines, as the major revenue came from the passenger load. From our study, it is understood that for an airline that has only passenger aircrafts in its fleet, the revenue contribution from cargo is only 8-10% of the total revenue. For the airlines that have cargo only aircrafts along with passenger aircrafts, the revenue contribution from cargo freight goes to 18-21%. Hence, on the higher side, cargo brings only 1/5th of the revenue of an air carrier. Hence, to meet the benchmark revenue, operational costs and to capitalise on the situation, the air freight prices have skyrocketed. All the airlines have hiked the air freight pricing to an all-time high. During the initial pandemic days, the air freight pricing had shot up 7-10 times depending on the trade lane. For instance, the air freight from Delhi to New York that used to be USD 2.65-2.70 per kg reached USD 14 per kg. As and when airlines started operating and with the gradual increase in the capacity, the air freight is coming down but still the prices are soaring high. Many manufacturers, exporters and shippers held back their production and exports/ imports due to the exorbitantly high cost waiting for the prices to come down. Many resorted to moving their shipments through sea freight.

Moreover, most air carriers are operating smaller aircrafts as per passenger demands to operational costs. However, there are limitations on these narrow-bodied aircrafts for cargo that requires special handling like temperature control, unitised loading, heavy goods load-ability, big-sized cargo and so on. While a wide-bodied aircraft can carry goods between 10-30 tons per flight depending on the aircraft type, the capacity of a narrow-bodied aircraft is only 2-6 tons per flight. Also, the smaller aircrafts cannot fly for more than 4-5 hours at a stretch, so long-haul air cargo movement is hindered.

SEA FREIGHT

If we put some light on the sea freight scenario, it is no different. China had capitalised on the pandemic situation and edged themselves as the major sourcing hub for the medical supplies, equipment, pharmaceutical APIs, and other raw materials and finished goods, that was required on war-footing, across the world. This led to severe shoot up of China's exports throughout the pandemic which happened mostly by sea freight. This scenario caused a disproportionate turnaround of the containers movement across the world. The empty containers got accumulated at various ports as movement happened mostly one-way. The disruption in the movement of the containers can still be felt with the shortage of containers at various ports, which has affected India largely. As 80% of the global trade is done by sea, the ocean trade getting affected has impacted the global economies. The shortage of containers has resulted in increasing prices of sea freight by 4-5 times. The shipping lines are facing the brunt with excessive demand and shortage of supply, hence increasing the prices to capitalise on the situation and also goods are facing longer dwelling time at ports and prolonged turnaround time.

FIRST & LAST MILE CONNECTIVITY

The situation has also led to several other setbacks like first and last mile connectivity disruptions, transit lags, shortage of manpower, shortage of warehouses, suppliers and exporters holding the goods due to extreme freight rates, and so on are not helping to meet the order and shipment requirements. As the nations are inching closer to the distribution of the successfully tested vaccines, the logistics disruptions are a serious matter of concern. There will be dire need of robust and falter-proof supply chain integration and phenomenal air cargo capacity by early 2021. The vaccines require express transportation, large cold storage facilities at transit points, professionals with handling expertise, need of palletization and unitisation of goods. Air Cargo capacity will be in high demand to get the vaccines to various parts of the world. All this would need wide-bodied aircrafts and freighters to operate. Moreover, there could be infrastructural challenges for cold chain movement and storage as there are many vaccines that require ultra-low temperature (ULT) control as low as -20-to-70-degree Celsius.

As far as India is concerned, the country is one of the largest buyers of the vaccine that contemplates to procuring 600 million dozes by early 2021 for half of its population. However, the procurement planning calls for a robust cold-chain infrastructure. India has approx. 7800 cold-chain warehouses that can accommodate 35 million metric tonnes of cargo. However, the cold chain facilities are too unevenly spread across the country. There are only approx. 10000 refrigerated trucks across the country that serves to only 2% of the perishables produced. Moreover, to utilise the existing infrastructure for the vaccines, will affect the storage of the perishable goods and will also be refrained due to any possible side-effects on other goods.

The risk factor and security concerns involved in logistics for the vaccines cannot be ignored. The panic can lead to cases of pilferage, tampering, robbery, during the transit. Logistics of vaccines would require special planning, secured loading and safeguarding throughout its movement like that of valuable goods like gold, silver, currency notes, etc.

India is also competing with China as a supply and sourcing hub for many other nations. However, due to the aforesaid logistics challenges coupled with the issue of container shortage, India's competency is lagging and India is losing out the opportunities to cater to the demand from Europe for pharmaceuticals, medical products, vaccines and even other commodities.

Indian government with authorities of other nations need to intervene to prioritise global pharma distribution and safeguarding humanity, as profitability of the air and ocean carriers is secondary at this dire point in time when global distribution is of utmost importance.

This is the time when rigorous technology-based solutions, supply-chain transparency and visibility, risk-mitigation and seamless logistics management is sought with the help of latest technologies. In nutshell, the whole world is waiting for the vaccine fervently and we ought to work together to make this mission possible!

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