The Impact of COVID-19: Reflections on the Transport and Logistics Sector07 May 2020
COVID-19 and international movements
Nearly 90% of the World’s population is subject to some form of international travel restrictions as a result of the COVID-19 global pandemic. This has halted travel demand, with significant implications for airlines, and carriers such as Air Mauritius and Virgin Australia have been put into voluntary administration. In 2020, Africa is expected to lose over half the air traffic it had in 2019, losing USD 6 billion in passenger revenue, and nearly half of the sector’s employees.
Figure 1 Passenger and revenue impact estimates for 2020
Such restrictions will have a big impact on the World’s economies. The US is expected to experience a USD 400 billion reduction in travel spending for 2020, representing a loss of USD 900 billion in economic output. But some of the most impacted countries will be those small economies dependent on trade and tourism. Mauritius, for example, is estimated to experience a 59% decrease in passengers in 2020 in comparison to 2019, losing USD 2 billion in GDP and over 73,000 jobs due to the reduction in tourism alone. The former Minister of Finance of Mauritius, Dr Rama Sithanen, spoke of an L-shaped curve, rather than the often spoken of ‘V’-shaped curves of recovery, for many of Mauritius’s leading industries.
Nevertheless, the virus is creating opportunities for some and challenges for others. On the one hand, e-retail logistics, on-demand and last mile delivery sectors are amongst the highest growth sectors as a result of the Coronavirus crisis. On the other hand, the automotive, oil and petroleum distribution, construction, and steel production sectors have seen a drastic fall in demand. These heavyweight industries have been afflicted with both supply and demand shocks that make recovery slow and painful. Companies in land-locked and small island states are also facing severe disruptions to production, being unable to receive the necessary inputs and raw material to continue producing.
Figure 2 Supply chain disruptions have far reaching effects
How is the transport and logistics sector responding to such changes in demand?
The transport and logistics sector is particularly vulnerable to economic shocks. With around 80% of global trade volume being transported by commercial shipping, companies are doing their best to meet the demand and rebalance their portfolio. As highlighted by Manner-Bell, CEO of Ti, “the more diversified logistics companies have the opportunity to re-allocate resources from one business sector to another.” Nevertheless, despite such rebalancing, and the expected upturn in demand for logistics services once the coronavirus crises start to fade, it is expected that the shipping industry will see its volumes reduced between 20-25%. Some airlines are adapting their planes, enabling their passenger aircrafts to operate as cargo planes in order to avoid fatal business disruptions.
In Africa, the transport and trade sector is expecting a 41-50% reduction in their revenues, according to a recent survey on the economic impact of COVID-19. As it is, transport companies are only operating at 21-30% of their capacity, fueling the fear of eventual business closures.
What are countries doing to ensure that trade keeps moving?
Countries, especially those that are road-connected, are adopting measures to ensure that trade continues and goods reach their destinations, minimising the impacts on all supply chains. The EU, for example, recommends its Member States to facilitate the use of passenger aircraft for cargo-only operations and to temporarily remove, or apply flexibly, night curfews or slot restrictions at airports for essential air cargo operations.
China, for example, accelerated the release of cargo to 45 minutes by implementing special counters and green lanes to provide 24/7 clearance at critical ports across the country, provided pick-up service upon arrival for imported medicines and medical devices, and undertook on-board inspections or door-to-door inspection, amongst others.
In Africa, in the Southern African Development Community (SADC), the Regional Transport Transit Facilitation Cell (RTTFC) has drafted its short-term action plan, ensuring that food and basic items reach those most in need.
Overall, COVID-19 is spreading across the World, and it is likely to continue doing so over the next months. Governments, companies and institutions will have to, not only address the existing crisis, but also prepare themselves for future supply chain disruptions that future similar events – pandemics, climate change impacts, etc. – might cause.
Author: Paul Baker
This article appeared first in International Economics’ CEO Insights on May 7, 2020
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