Coronavirus strikes a deadly blow at logistics industry

P Manoj Mumbai | Updated on April 02, 2020 Published on April 02, 2020

Representative image   -  Bloomberg

The deadliest pandemic to hit the world in decades has wrought havoc on the logistics industry, with experts predicting that it will trigger a complete collapse of various sub-sectors if it lingers for long, perhaps even overhauling the way the industry operates.

“The logistics sector as we know it will get completely redefined at a country level, many countries that are large enough or diverse enough (such as the US or India) will look at diversifying their supply chains, and in many cases, focus on national sourcing,” says Jagannarayan Padmanabhan, Director and Practice leader – Transport and Logistics, CRISIL Infrastructure Advisory.

Others, which are part of a larger region (such as the EU), will look hard at regional sourcing. Economics, which is always paramount, will likely be joined by security and risk mitigation considerations.

“In India, for instance, Mom-and-Pop stores are suddenly bustling with activity as the lockdowns have shut down malls and hypermarkets. Adoption of technology and more disintegrated sourcing will be the norm and logistics companies will have to align their processes to such an eventuality,” adds Padmanabhan.

Container freight stations, inland container depots, warehouses and port terminals are feeling the heat. The shutdown of factories and lack of manpower to de-stuff cargo as well as drivers to operate trucks for cargo evacuation has roiled the export-import trade and, in turn, the smooth functioning of the logistics industry.

Ports, public private partnership (PPP) terminals, CFS/ICD are notified as essential services. They are therefore required to keep the operations going.

“However, due to slow evacuation of containers/cargo, the terminals are getting choked,” says an executive with a logistics company. The economic impact of the coronavirus is severe for these entities due to shipping-line schedule disruptions, delayed berthing/non-berthing of vessels, absence of a workforce due to the complete lockdown on public transport services and other restrictions imposed by State governments.

“There has been a significant drop in volumes at all facilities. As the volumes fall, it will take several months before they get back to normalcy -- ports are highly capital-intensive in nature. The standing cost of assets is very high, running into millions of rupees. Hence, the financial burden on the terminals is very high. A simple moratorium of debt service obligations will not help. It may need a waiver of these obligations for the period affected by the pandemic,” said the managing director of a port operating company.

Relief sought

The crisis, according to industry sources, warrants a complete waiver of revenue-share/royalty payable by PPP operators to port authorities till June 30, waiver of land lease and any other lease/rental for 180 days, waiver of all minimum guaranteed throughput (MGT)/ performance standard obligations for the next six months and extension of the construction period of all PPP projects under execution by 6 to 12 months.

Cargo terminal operators have also sought extra free land for six months adjacent to the existing concession area to store empty containers.

This is because the disruptions in the supply chain have created a huge imbalance of empty containers in India, and post-lockdown, the operators expect a surge in cargo for which terminals should be equipped with additional land to store these containers, without any additional cost to the trade.

Published on April 02, 2020

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