Impact of COVID-19 on Freight Shipping and Expense

Impact of COVID-19 on Freight Shipping and Expense

Recent tariffs and the ever-increasing demand for rapid shipping have pushed this number higher. A drop in consumer demand will likely lower the number. However, the focus should remain on the diversity, resiliency, price and efficiency of the supply chain.

Mainly due to the shutdown of factories in China during march 2020, the U.S companies were facing a tough situation of inventory shortages and were unable to replenish stock from their suppliers. Even global companies like Apple and Mazda suffered. Mazda is an example of a company that took immediate action; it established a factory in a near emergency in Mexico to produce certain components. This was done to avoid completely shutting down certain auto factories in Japan.

Companies that have been in this situation are determined to avoid getting into a similar situation. This is prompting many brands both small and big to consider diversifying their supply chains and supplier management. Essentially, companies are seeking to reduce supplier risk in their overall supply chain plan as not wanting to have all their eggs in one basket.

From a supplier perspective, China will continue to dominate as a top importer for many nations but brands are looking at other options as well such as India, Thailand, Vietnam and Mexico. This will continue to play out over the next few years as companies have a newfound appreciation for supply chain reliability as they’ve learned what worked and didn’t work during the ongoing Covid-19 pandemic.

Inventory Levels

Inventory planning is crucial for keeping working and capital levels manageable while also improving the overall return on invested assets and lowering warehousing cost.

However, the pandemic has proven that very low inventory levels might just be too low for certain raw materials, sub-components used in factories and even finished products. Accordingly, warehousing demand has risen with large supply chain and logistics firms looking to expand their warehousing offerings. Even Maersk, one of the largest ocean carriers recently spent over US$ 500 million to acquire a warehousing provider to keep up with customer demand. Experts have predicted that there will be continued expansion into warehousing for existing logistics players and warehousing revenues will increase exponentially.

More Tariffs 

As most economists would argue that tariffs are inefficient and ultimately pass on the cost to consumers, the pandemic has opened the discussion of the current tariff proposals. If these tariffs on both Asian and European products will be implemented or what they will be in their final form no one knows. But, certainly, any company that imports these items will be closely monitoring this situation as a 20% to 25% tariff can easily turn a healthy profitable product into a money-losing affair. 

The volatility is high as rates are higher than previously expected on many lanes. However, on other lanes, there are still more trucks than there are loads available which are keeping the rates depressed. Ocean rates on some lanes have climbed particularly on trans-pacific lanes as carriers have blanked sailings which pushes rates even higher. Air freight also increased slightly from the 25% drop in April 2020, even with these volume declines, capacity dropped by 41% sending air rates higher. The passenger carriers started converting some passenger planes to carry limited amounts of critical cargo. Railroads have been hit hard by the drop in auto traffic due to the large auto brands halting production. Railroad pricing doesn’t fluctuate as quickly as trucking pricing does. Therefore, intermodal rates haven’t changed a meaningful amount. 

Some states are considering another potential shutdown to curb the spread of the virus. So what does this mean for supply chains?

One possibility is that transportation demand stops recovering as businesses partially close again or that due to an increase in covid-19 cases, progress is thwarted somewhat by states and local governments imposing stricter measures regarding the reopening of businesses. Despite the vaccination in circulation, the covid-19 cases may continue to be reported for a while, which would prevent freight volumes from continuing to increase and further delay the volume recovery.

Pandemic has shown just how volatile supply chains can be. To avoid downsides and minimise risk, companies must diversify their supply chains. The emergence of IoT, AI and blockchain technology is transforming the supply chain as we know it. It will make the whole system more transparent, improve logistics and enable real-time tracking of products. Data analysis in the supply chain will help predict trends and reduce redundancies. Overall, it will make the chain more efficient and reliable. The world is moving towards digitalization and so are the supply chains. Technology is the single most powerful tool that aids men in times of uncertainty and chaos. We must leverage technology and navigate through the Covid storm together

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