COVID-19 Update

There is a lot of anxiety and uncertainty in the world right now. In response to the recent volatility seen in supply chains across the region we have this fortnightly series of webinars on our current situation to help relieve some of the uncertainty. Our intent is not to mislead you with promises or prognostications; instead, we aim to provide both a brief recap of how we got to where we are today, as well as carefully laid out scenarios for tomorrow so that you can be prepared for what may occur.

How we got here and where are we going?

IN Phase 1, following on the heels of Chinese New Year, the Wuhan, China outbreak of COVID-19 led to province-wide quarantines and production halts. This immediately slammed the amount of goods exported out of China which resulted in the downturn of import volumes to many countries. No one was spared, even B2C consumers were affected when their e-commerce shipments stopped flowing or were delayed.

IN Phase 2, we are seeing two things happening, Firstly, a significant bullwhip effect for certain products such as toilet paper and a corresponding, unhealthy and incorrect demand for perceived complimentary products such as kitchen rolls. Secondly, we are seeing rates especially in airfreight skyrocket as belly capacity is reduced and oceanfreight being affected by blank sailings due to haulage driver shortages and the lack of backhaul cargo, amongst other reasons.

Phase 3 of the effects of COVID-19 is our next stop, but one riddled with many unknowns and possibilities. The current surge in volumes is a direct result of panic buying. For example, many consumers have stocked up several weeks worth of food, cleaning supplies, and toilet paper, and this front-loaded demand will not be suddenly met with an equal increase in consumption at anywhere near the same level. Potentially worsening this scenario, the nationwide closures of schools, sporting events, conferences, restaurants, bars, movie theatres, retail stores, and offices being instituted in many countries will not bring any additional demand. In this event, rates will tank as there will not be enough volume to sustain these elevated levels – or will it.

Clouding that line of thinking is the supply side of the equation for other products and components; how do we forecast demand in our supply chains moving forward with bullwhip signals in some supply chains and pent-up demand in others?

Further adding to this complexity, the severe selloff in crude comes with an ominous outlook. At current prices, sub-$40 for all of 2020, much of the oil and gas industry would become insolvent and the loss in demand will see many aligned and adjacent industries further impacted.

Another component for Phase 3 would be the effect of national quarantine measures. We are already seeing in some countries the army being mobilised to enforce this and we expect more severe measures to follow. These are very necessary steps but this will produce an environment of extreme demand for necessities and send volumes, along with rates for products and freight, exponentially higher.

COVID-19 is clearly showing us that we are not managing supply chains but supply chain ecosystems or webs where the effect of one impacts across multiple supply chains in not just one country but potentially a whole region.

In summary, there are too many variables to correctly predict what will happen to freight rates or even volumes in the coming days – let alone overall supply chains. Unfortunately, some amount of up and down volatility is to be expected in these unprecedented times, so the best course of action would be to be prepared for all scenarios and mitigate your risk as best you can.

This series of webinars in the lead up to LogiSYM Digital on 25th June will be hosted by Editor-In-Chief of LogiSYM, Mr. Joe Lombardo, himself an industry veteran with more than 40 years experience. He will be joined by other supply chains experts as they discuss these issues that affect us overall and hone in on specific elements.

We are confident that Logisticians can get through this and the period of anxiety will pass. However, as always we will be with you in your journey and provide insights and perspectives that will help you stay ahead.

Stay safe and stay healthy.

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