The short analisys of logistics 2020 COVID

Since the outbreak of the COVID-19 pandemic global and local markets have been hit in a short time. A significant reduction in production capacity around the world, the closure of borders between countries and the introduction of a self-isolation term have left the whole world holding its breath. The usual business ties, contracts and deadlines, the provision of the supply chain of raw materials and end products were violated, and the entire world logistics was on the verge of collapse. Changes in demand, suspension of production and the introduction of restrictions have led to an imbalance in the entire system of freight traffic.

   

At the moment, global trends in logistics can be described as follows:

- there is a decrease in both global and local cargo volumes due to the closure of borders between countries during pandemic, the points-of-sale have been closed worldwide as a part of necessary precaution, an increase in the dollar exchange rate, a decrease in buying activity.

- the customary rules of the business are no longer possible, and their absence under quarantine frightens all representatives of the logistics market.

 

As the sea transportation is a part of a complex multi-modal system and cannot exist on its own, it has been affected seriously in the same way as the rest of transportation chain such as land and air transport.

  

Let's take a look at the situation with cargo transportation with reference to countries and regions. It is best to start with China, which has been the first to cope with the shock and adjust to the conditions of new reality called “COVID-19”.

 

 

The countries of Asia were the first to take the blow of the pandemic and were the first to begin to restore work to rerun freight traffic to Europe. By the end of May, 90% of China's production had been restored. In the conditions of collapse of the usual multi-modal transportation schemes, China has managed to solve problems in area of sea transportation. The operators have been showing flexibility and readiness to adapt quickly to the rapid changes in conditions of uncertainty. The customs services, in their turn, did not reduce efficiency, but switched to a significant minimization of time required for customs clearance of priority cargoes. All these measures helped to open a "green corridor" for anti-epidemic and medical supplies, raw materials and spare parts to restore production in wide range of fields. In response to a fast-paced mobilization, many customses have introduced a system with idea “first release, then complete customs clearance procedures”.

 

Such changes made it possible to resume the work of enterprises, production of goods and restore foreign trade. Unfortunately, shipment numbers between China and Europe have failed to reach pre-pandemic levels so far.
 

In addition to this, the difficult relationship between China and the United States must be considered. Recently, trade wars, bans and closure of sales markets affect China no less than the COVID-19.

 

   

The EU economy is experiencing all the consequences of the pandemic and quarantine. The movement of freight transport was not completely suspended, yet each EU country introduced different restrictions and rules according to the local situation. There was also a decrease in clients who required the services of transport companies. According to the forecasts of the Euro Commission experts, the fall of the European freight market will reach approximately 40-45%.

 

Shipping analysts point out factors to indicate the growth of negative demand for sea freight. According to experts, this will be facilitated by protectionism, since all over the world they want to restore the level of employment, which has significantly decreased since the outbreak of COVID-19. The authorities in such countries as Latvia, Germany, Italy, have decided to introduce preferences in the form of lower tax rates and rent-free periods for the largest logistics companies.

 

Let's look at the trends in the European Union:

- a decrease in freight traffic both as inside the countries themselves, so as between the countries of the European Union, which in its turn reduced external trade between other countries outside the euro zone.

- Brexit and the lack of clear agreements between the EU and the UK, no less than a pandemic, have an impact on logistics.

- the rate cut within the Euro zone went down.

 

If, in particular, we talk about sea transportation, it is worth mentioning another trend. Simultaneously with the arrival of the pandemic, there was a global collapse in oil and fuel prices.

 

This situation can be described as " to count on a life raft during the perfect storm." (or "A band-aid on bullet wound"). Bunker prices collapsed in the first half of the year. If we look at the dynamics of fuel prices, we can see how the prices for VLSFO low-sulfur fuel oil have decreased from $ 700 to $ 200 per ton, which is quite impressive.

 

 

When it comes to Ukraine, along with a difficult political situation and military conflict, the introduction of quarantine due to the pandemic looked like "the icing on the cake." The already existing problems in logistics affected sharply the transportation of food and agricultural products. But over time, at the beginning of summer, positive trends appeared - the change in logistics flows was facilitated, first of all, by an increase in grain yield and the emergence of a new cargo base. So, if the production of grains and oilseeds in 2018 was estimated at 92 million tons, then in the past season the gross harvest reached about 98 million tons, moreover, according to experts, in 2020 this figure could be 113-115 million tons. According to experts' forecasts, by 2025, the share of river transportation may increase from 9% to 20-30% and amount to about 12 million tons, which is caused by economic feasibility and the growing interest of all market participants in this area. 

 

According to the statistics given by the Seaports Administration of Ukraine, over the past 4 months, cargo handling has increased in all categories of cargo by an average of 12.7%. An increase of 14.6% is recorded in the handling of containerized cargo. 

 

Nowadays the share of container transportation market remains the same, but there is a serious imbalance in the lines and equipment supply. With the onset of the epidemic, we have been observing a gradual increase in tariffs, but due to a decrease in demand, most of the rateS went down. The container lines were forced to carry cargoes at freight rates, meaning often negative or zero income, due to high competition.

 

 

2020 has become quite difficult for all participants in the Russian market. According to experts, losses in the transport sector by the end of spring went to more than 230 billion rubles(3,4 US DOLLARS). Air carriers suffered the most, and during quarantine they were forced to almost completely stop work. Warehouse areas and storage facilities were idle due to a decrease in the volume of cargo turnover. Due to the reduction in the main flows of trade between the EU and China, all types of transportation decreased significantly. 

 

The Government of the Russian Federation took additional measures to support logistics companies, e.i. tax holidays, deferrals for loan obligations, temporary deferrals for rent payments. Due to the economic consequences of the epidemic, imports of goods from the EU countries and, conversely, exports from Russia to the EU have been decreasing. Strengthening quarantine measures during customs clearance provoked delays and increase in delivery time. As a result, the logistics chain links of international transportation are changing and the domestic Russian traffic is growing. 

 

Despite the closure of the borders, the segment of container traffic in the first quarter still observes positive dynamics in Russia. The complicated situation in Europe brought up decrease in cargo shipments to the East and empty containers shipment back. Market participants note that the discount in the total cost of transportation, despite the high share indicator, meant almost nothing even though historically, the container shipping segment has been more volatile due to its niche and greater focus on imports. Export by the containers has risen significantly in recent years, which could support a rapid recovery after the pandemic subsides, while imports and domestic shipments remain under pressure from the weak ruble and the economy. 

 

The peak of COVID-19 activity in Europe was the reason to cancel exit of ocean-going vessels from Southeast Asia, since it has been impossible to process shiploads in European ports.It was all not about tariffs and terms, but the companies were often guided by the principle “just to deliver”.

 

Empty voyages and the unstable situation at a number of border points significantly affect sea transport:

• Ports got slower to accept and release cargo and delays in customs clearance became often reality.

• Due to a decrease in demand for transported products, transportation opportunities are reduced.

• The imbalance in free facilities (empty containers) in many countries: shortage in ones and surplus in others. Shipowners more often discuss the idea of putting vessels on hold pending the resumption of demand for container shipping.

• Crew members were forced to be at sea due to quarantine without the opportunity to “go ashore”. Cargoes "got floated" in the sea. Seafarers demand the unification of local quarantine measures within the countries, the allocation of "green corridors" for the crew change.

 

 

Thus, in connection with the global crisis provoked by the COVID-19 pandemic, the logistics industry is in dire need of support. Quarantine measures taken to suppress the coronavirus epidemic have led to the congestion of most airports and sea terminals and, as a result, violation of the terms and conditions of cargo delivery. 

 

Overcoming the current crisis is an unprecedented challenge for the management team of all logistics players. It is necessary to quickly take stock of all available state support measures and develop a further action plan. This will require the resources of a whole team, including lawyers, financiers, economists. In parallel with this, now is the time to review partnerships with contractors, terms and obligations under contracts, carefully work with working capital and liquidity.

 

The logistics incur losses. It will not be easy for shipowners, but they have already learned since 2008 to work with varying success in changing conditions. After the pandemic, the logistics world will not be the same. But companies that follow trends and quickly adapt to changing circumstances will be able to manage the situation, create demanded services and strengthen their position in business.

 

It is especially important to emphasize that a common misfortune has united and rallied the logistics industry. In the context of the emergence of the global economy from the "pandemic peak", it is the collaboration of logistics companies that can become one of the most important and effective drivers of further development and growth.