Logistics during and after the quarantine: challenges, prospects, and forecasts
Much like other industries, logistics today is experiencing turbulence due to the spread of Covid-19 in the world and Ukraine.
Kateryna Morozova, Team Lead of EBA Southern Ukrainian Office, provides her expertise on the negative and positive impact faced by the main players in the logistics market during and after the quarantine. Herein the EBA member companies share their experience, as well as their short- and long-term forecasts regarding cargo transportation by sea, road, rail, and air.
The economic consequences of the pandemic have primarily affected sea cargo transportation from China. However, there was a recent increase in freight traffic due to the arrival of cargo that has been blocked at the Chinese border for a long time. Moreover, sea container lines introduced an additional surcharge for the export of containers to all Asian countries. Despite all the difficulties, the ports continue to operate as usual in compliance with the requirements of employment protection. Also, the logistics industry has faced the lack of returnable containers, which will directly affect the cost of exports and lead to its rise in price, as far as there is the need to supply direct containers. We should also mention a more active use of electronic document workflow among the positive aspects.
In general, all sea freight services have become cheaper in connection with lower fuel prices. Due to high competition, container lines are forced to operate at negative or zero freight rates. When it comes to freight carriage, the sea transports provide the cheapest options. The prices are maintained up to quarantine levelOleksandr Lazarev, Co-Chair of the EBA Customs Committee, CEO of Lamarin
Besides, the current information system of ports enables the automatization of processes and the submission of documents in electronic form. It is important to make all these electronic services, as well as the possibility of contactless customs clearance of goods in ports accessible to everyone.
The implementation of quarantine restrictions has led to the closure of several enterprises and factories in Ukraine and Europe. This, in turn, affected the volume of international road transportation. Back in March, there was a demand for road transport, however, with the rate increase, the demand began to fall in April. According to the pessimistic forecast, the decline in the road transportation industry amounts to 20%. At the same time, there is a gradual resumption of activities.
Business is gradually coming to life. Although, the situation was rather ambiguous in the early days of quarantine. After all, logistics and other industries cannot work without proper transportation. However, logistics companies have probably been in a better situation than the hotel and recreation sectors. The restrictions have surely affected the logistics too. Thus, 107 border checkpoints were closed and only 19 of them left open in the peak of a pandemic. But even under such conditions, the business continued its operationsMaria Mulyava, CEO of GTL
Regarding the railway, the volumes of rail cargo transportation of JSC Ukrzaliznytsia decreased by 4.1% according to the State Statistics Service of Ukraine as of March 2020. Due to the reduced passenger traffic, freight trains found themselves in better conditions during the quarantine. Despite the quarantine measures, rail cargo transportation continues its work on a regular basis.
The railway is the main transport artery of Ukraine, but unfortunately it needs proper treatment. The indicators have increased slightly, the car turnover has grown within one day, while the average speed of the freight train has raised. Thus, it would be desirable if such improvements were made possible due to the increase in freight, and not to the abolition of passenger traffic. However, despite all the improvements, cargo shippers still have many questions to UZ regarding the tariff system and a recent UZ Agreement on rail freight. We are still waiting for the solutions to these issuesDaria Sichkar, EBA Logistics Committee Railway Infrastructure Working Group Coordinator
There is a demand decrease by 15% in the field of air cargo transportation worldwide. Thus, the cancellation of passenger flights also affected the cost of cargo delivery services because most of them were previously delivered by passenger aircraft. There are no cargo flights by any airline in the world due to the very high cost. As a result, tariffs have been increased by more than two times: before it was 4 USD / kg, but now the price starts from 11 USD/kg. In the current situation, multimodal (mixed) transportation or rail transportation from China may be a possible solution. Thus, prices for export destinations have grown by two times, from New York and Toronto by two-three times. Basically, the most expensive freight is from China – prices have risen by five to six times.
Natalia Yelipasheva, Air Transport Expert, DSV Panalpina emphasized that the aviation industry appeared to be most sensitive to the latest changes. Moreover, according to her forecasts, after the end of quarantine in Ukraine, not all air carriers will continue to fly. However, the good news is that the prices for passenger air transportation have been decreased from July 2020.
As mentioned by EBA experts, it will take about two months to resume cargo transportation, while most customers will be likely to optimize and reduce their costs. Also, it will take at least two years to restore the aviation industry. Rail and road transport were the least sensitive to quarantine restrictions. Thus, tariffs began to rise at the beginning of the epidemic, but they gradually decreased due to uneven demand. At the same time, European Business Association emphasizes once again that the tariffs must be competitive because a tariff increase can be lethal for some industries in a crisis.
We can see that today many logistics providers must change the established schemes of work and use alternatives, which sometimes are more expensive options, to stay afloat. Also, multimodal (mixed) transportation may be a great alternative given the new conditions. Thus, it implies cargo transportation by two or more types of transport organized under the responsibility of the operator of multimodal transportations based on the uniform contract. Regarding air cargo, shipping carried out through European hubs, such as Frankfurt, can be a new option to consider.
It is also highly possible that a new shipping option will appear in the nearest future.
Finally, the quarantine has shown that trust and cooperation are important for a success today. We are all in the same boat, so it is worth looking for new approaches and partners, and quickly adapt to the new reality of 2020!