COVID-19: IMPACT ON THE TRANSPORT AND LOGISTICS SECTOR

Flightradar24 reports a 55% drop in commercial flights compared to March 2019 [1], whilst sales of food in supermarkets exceeded the Christmas shops many times over in the UK [2], with incidence on the related logistics. Business continuity has been the number one priority for most organisations, yet looking to the future and planning strategically for the post-crisis period should be at the top of the agenda too.

The breadth of the transport and logistics (T&L) sector makes it difficult to draw generalist conclusions. We see large discrepancies between different types of players – passenger transport versus cargo transport for example. Various factors also need to be taken into consideration, such as transport by air, rail, road and sea. In times of confinement and tighter border restrictions, distinguishing between international and national players is equally pertinent. And finally, there exist many different types of cargo: container, bulk, liquid and general.

All players will require very specific and tailor-made solutions to navigate through the storm, adapted to each unique situation and needs. However, businesses should all reconsider their strategic plans for the next years as soon as possible, asking themselves “what are the lessons learnt and what does it mean for my organisation?”.

A sector of contrasts

Looking at those who have managed to adapt the fastest to this unprecedented situation will highlight areas to consider when preparing for the post-Covid19 era. The remarkable agility of some players who have rapidly resumed activity by making use of technology to exchange capacity between various actors and to manage very large operations remotely is particularly noteworthy.

E-commerce players and the associated T&L are among those least negatively affected by the crisis. Logistic providers to supermarkets are equally in good shape, currently hiring in large numbers to respond to the exponential demand in food deliveries. The most severely impacted on the contrary is passenger transport. From cars, to trains and planes, to public transportation, everything is practically on standstill. The world of cargo has also suffered losses, in particular due to tighter regulation and border controls, as well as the severe loss of traffic to and from China. The associated costs to this downturn are huge and include blank sailings, grounded planes, containers pilling up on quays and demurrage to name a few.

Some sectors such as tourism, hospitality, construction and catering are also severely touched, which by domino effect has consequences on T&L. Will this have structural consequences on the sector? For instance, will cruise ships be as popular in the future as they were in the past?

Notable trends: getting ready for a new normal

In all cases, organisations should dedicate time and resources to prepare for the after crisis and to plan their post-Covid19 strategy. There will be a number of novel trends to take into consideration such as new business models, bankrupt players and the success of working remotely. Below are some observations – formulated as questions – to help think and prepare for a new normal:

• Will the T&L sector revert back to how it was organised in the past? So far, we have primarily witnessed a ‘modal shift’, with transport by road and sea moving to rail. For some train logistics companies, everything is already back to business-as-usual.
• The way people are transported will structurally change? We can already assume with a degree of certainty that video conferencing will replace many physical meetings. Similarly, in the close aftermath, we can imagine that people will travel less, both locally and internationally, which will continue to impact public and passenger transportation.
• Might local consumption become the norm? Countries are currently struggling to import food and goods, so it is likely that authorities will reconsider imports and start relying on more local sources of production, as to be more resilient if a new crisis were to happen in the future. In the private sector, these supply chain considerations will also be important.
• A rise in the number of contract workers in T&L is likely? Having a flexible scale and being able to rapidly decrease or increase the workforce has proven to be an advantage for many companies. However, governments will probably try on the contrary to protect independent workers, who have been among the most vulnerable in this crisis. Finding the right balance between stability and flexibility, as well as adopting new ways of working, will be some of defining challenges of the post-crisis world.
• Contracts will automatically integrate a ‘force majeure’ clause? Some players in the T&L sector have been heavily impacted by the missing ‘force majeure’ clause in contracts. Debates around this legal concept should see the light of day very soon.
• Will there be a loss of value? The current underutilisation of fixed assets in the sector (i.e. vessels and airplanes), which has severe cash flow implications, will also most probably impair the value of these assets.
• Can IT cope with the demands of the new normal? A flexible and scalable IT function has proven to be a critical success factor. Clients are rethinking ways of doing business, and hence will have different expectations and requirements of their logistics and travel service providers. Besides, T&L companies and their teams may have adopted remote and different ways of working that will endure after the pandemic. This will require a thorough, structural rethinking of the organisation’s IT landscape, which requires vision and a roadmap to get there. This applies to IT systems and applications, where an accelerated change from legacy to new software solutions may need to be executed. But it also requires a close look at the IT-people, -roles and -governance that will be needed to manage and support this crucial digital transformation.

It is still too early to draw any solid conclusions on the long term effects of Covid-19 on the T&L sector. However, the economic downturn has had evident positive repercussions on the environment and we can suppose that the slowdown of T&L has played a part in this. In the future, this may impulse the wider integration of ecological and sustainability considerations into strategic planning.

[1] https://www.flightradar24.com/blog/charting-the-decline-in-air-traffic-caused-by-covid-19/

[2] https://www.business-live.co.uk/retail-consumer/supermarket-sales-smash-christmas-covid-18011745